Scalper1 News
Yahoo ( YHOO ) stock slid 3% the past week, even though telecom Verizon Communications ( VZ ) has talked up its interest in buying some Yahoo assets “at the right price.” That’s what Verizon CEO Lowell McAdam told CNBC’s Jim Cramer on a Feb. 5 broadcast of “Mad Money.” Then on Monday, reports surfaced that Verizon had put AOL Chief Executive Tim Armstrong in charge of exploring a Yahoo acquisition. Verizon acquired AOL for $4.4 billion, including about $300 million in AOL debt, in June. Yahoo shareholders may be unimpressed over what Verizon could pony up, some analysts say. Verizon paid about eight times EBITDA (earnings before interest, taxes, depreciation and amortization) for AOL. AOL’s Internet business, however, had been improving, unlike Yahoo’s. Verizon could be vulture-like and wait for struggling Yahoo to struggle more — Yahoo announced its first round of layoffs on Wednesday amid growing management defections. But analysts say Verizon hopes Armstrong can woo Yahoo on good terms. (Verizon hasn’t hired bankers and there have been no formal talks, according to reports.) If Yahoo sells off its core Internet operations, shareholders would expect a special one-time dividend down the road from whatever is left of the company as the result of a possible “reverse spin” involving its stake in China e-commerce leader Alibaba ( BABA ). Verizon Balance Sheet May Be Challenge Could a Verizon-Yahoo deal be do-able, given that Verizon’s balance sheet is somewhat stretched already? Credit rating agencies Standard and Poor’s and Moody’s have not commented on Verizon’s interest in Yahoo. Verizon debt has an investment-grade Baa1 rating. Verizon had $4.5 billion in cash on its balance sheet as of Dec. 31. Verizon bought out U.K.-based Vodafone Group ’s ( VOD ) 45% stake in their Verizon Wireless joint venture for $130 billion in 2014, adding a ton of debt. Verizon ended 2015 with $105.7 billion in net debt. Verizon expects the sale of residential wireline assets in California, Florida and Texas to Frontier Communications ( FTR ) to close in late March. Verizon stated last year that it expects to garner $6.8 billion in net cash proceeds from the Frontier deal. Paying down debt had been Verizon’s priority. Verizon is expected to take part in a U.S. auction of TV broadcaster radio spectrum slated to start as soon as next month. In a research report Thursday, JPMorgan estimated that Verizon, despite talking down its interest in the auction, could spend $8 billion. Whatever Verizon does spend, it would not have to pay the government until year-end 2016 or later. At Barclays, analyst Amir Rozwadowski said the key to a Verizon-Yahoo deal, from a Verizon shareholder’s view, is whether “Verizon would be purchasing an attractive call option or an expensive declining business.” That depends in part on the valuation of Yahoo’s Internet business, as display advertising growth declines. UBS analyst John Hodulik said in a research report that “while Yahoo has had a mixed record transferring its success to mobile, the company remains the third-most-visited site for digital video.” Rozwadowski estimates Yahoo’s core 2016 EBITDA (excluding Yahoo Japan and Alibaba equity interests) at around $710 million. Depending on what EBITDA multiple Verizon were to pay, a deal might wind up costing the phone company in the mid-single-digit billions of dollars. Rozwadowski’s view: “We would consider a potential Yahoo acquisition as a ‘tuck in,’ with minimal financial impact and of small enough size that it would not derail any of the carriers’ operational or financial initiatives.” Scalper1 News
Scalper1 News