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Yahoo a Takeover Target? Not So Fast.

Don't forget about Yahoo Japan. And Softbank. And Masa Son.


Immediately after Yahoo finally said it was going to do what everyone knew it was going to do — announce plans to spin off its remaining 15 percent stake in Alibaba, worth $39 billion — the speculation that Yahoo would become a takeover target began.

“After Alibaba Spinoff, Yahoo May Become a Takeover Target” read the headline in the New York Times just today, summarizing the breathless chatter on Wall Street. “When the spinoff is complete,” said the Times, “Yahoo may be more likely to become the hunted rather than the hunter, according to investors and analysts.”

But, as ESPN’s Lee Corso always says: Not so fast, my friend.

To begin, the actual spinoff event will not be happening until at least the end of the year, if not more given the complexity of the transaction, all due to a lockup agreement related to the Alibaba IPO. That means that Yahoo will be as one until then, leaving it pretty much invulnerable to attack of any kind.

And that gives CEO Marissa Mayer — who is clearly betting big on her ability to turn the company around now without the protection of the huge Alibaba stake — lots and lots of breathing room. She certainly paid handsomely for it with the $16 billion in taxes she saved for Yahoo investors.

Owning the shares in the China Internet juggernaut has been goosing Yahoo stock throughout her tenure. It has also been a kind of poison pill from anyone wanting to come at her and will continue to be so.

Of course, that did not stop an activist investor — Starboard Value — from making the salient point that Yahoo was still, even under Mayer, lots of hat and very little cattle.

Because, despite her energetic turnaround efforts to push mobile, video, native ads and social (which she called MVNS in Yahoo’s fourth-quarter earnings call) into new growth areas — which are most definitely growing — Yahoo’s revenue trends continue to underwhelm. It’s not clear how long it will take for her bets on MVNS to truly pay off, but the delta between that and the falloff in display advertising and its older businesses remains an issue.

More of concern is Yahoo’s output of truly innovative products. While Mayer has renovated, painted over and shifted the company’s offerings, she has yet to radically transform them, perhaps hampered by an exec team that sources said she is rejiggering (the first move in this was a much-needed leadership change in its ad tech team, but there is more to come).

But adding and subtracting lieutenants will not create the next Instagram for Yahoo. To be fair, she has said it is a process that would take a few years — except that she is already closing in on three years now and Yahoo remains an also-ran compared to rivals like Facebook, Google and even the clever efforts by Snapchat.

This inability to turn around Yahoo easily is also another detracting element for potential buyers. In many ways, the secular changes that are moving swiftly through the advertising and content worlds make it hard to imagine Yahoo can keep up no matter what it does to hold back the tide.

While it’s possible some private equity firm could come in, cut costs and make Yahoo a money machine, it’s not the easiest or most risk-free choice in the fast-moving Internet world. Returning what had become a dying property from another era to glory is no mean feat, and anyone buying Yahoo would have to contend with the fact that it may be very hard to make thrive.

But it seems Mayer believes she still can. With the spinoff, she has most definitely put a stake in the ground that she is largely willing to stand on her own and be judged by her true performance and without the Chinese assets to bolster her stock.

It’s a bold move, given she could have chosen to spin off only part of the Alibaba stake, which would have let her keep billions more and helped her make some necessary moves. Mayer could have used the extra dough — while Yahoo already has $8 billion in cash, its hoard is minuscule in comparison to the massive kitties of others (Apple has $178 billion; Google has $60 billion). And most Internet companies she might buy that would be significant — Pinterest, Snapchat and more — are well beyond her grasp.

That’s why Mayer was stating the very obvious in her conference call with Wall Street analysts earlier this week when she noted she would stick to smaller purchase of under $1 billion, such as her buys of Flurry and BrightRoll. Really, she has no choice in this; she needs to find the smaller treasure that could help transform Yahoo.

She also practically did an ad for Apple related to its likely replacement of Google for its mobile search. While this is yet another moonshot of an effort — Microsoft is more likely to win Apple’s search business — sources said Mayer is intent on putting a lot of wood behind Yahoo’s long broken arrow of search. Again, once she publicly commits to this effort, it will be hard for a buyer to come in and rejigger her rejiggering.

But perhaps the most potent protection from takeover or even an obstacle to a friendly sale is that Yahoo still has its large 35 percent stake in Yahoo Japan. Now valued at $7 billion, Yahoo did not include it in the spinoff. While CFO Ken Goldman said this was due to the complexity of adding it, in truth it is because Yahoo needs the help of its other major owner — SoftBank — to do so.

Without getting into the complex reasons — it has to do with the need to have access to financial information required to do a similar spinoff — selling the Yahoo Japan stake means Mayer must work closely with SoftBank’s Masa Son.

While he may or may not be immune to such a move, Son has interests of his own in whatever Yahoo does with its Yahoo Japan asset and anyone buying Yahoo would have to also be betting on owning a big chunk of his company for the foreseeable future.

More intriguingly, with Alibaba gone and the Japan stake relatively immovable, it might even be on Son’s radar to buy the core business and integrate it into his current holdings. Buying a major U.S. digital property, especially given Son’s other investments in mobile, makes for an interesting combination.

More to the point, Son is the only buyer for whom it would be cheap — he’d get back his Yahoo Japan shares and get the core Yahoo business and its cash for next to nothing. That means that Son is the kingmaker for what will remain of Yahoo when the Alibaba spinoff is complete.

But there is a catch here — SoftBank and Son have already had a troubled foray into the U.S. market in unsuccessful attempts to merge Sprint with T-Mobile and the ensuing tough times at Sprint. Thus, he has his hands very full already and another splashy dive into buying a U.S. company may be too much.

Still, he hired former Google business head Nikesh Arora late last year to run his media and digital efforts. Ironically, Arora worked with Mayer at the search giant and was on the short list of CEOs for Yahoo, too. He’ll obviously play a big role in what happens to that Yahoo Japan stake going forward.

In other words, there are some interesting times ahead. Just not so fast.

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