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Yahoo ( YHOO ) could be facing a “take-under” — a buyout price lower than market value — from any of a number of private equity firms that might then dismantle the troubled Web company, an analyst said Monday. Private equity groups including Silver Lake, TPG and Blackstone might be interested in Yahoo, Rosenblatt Securities said in a research note. Yahoo has been looking at potential buyers while it pares costs, as the company has struggled to re-spark growth. “Yahoo did not get any seasonal uplift from 4Q digital media advertising demand, relative to its much larger peers like Facebook ( FB ) and Alphabet ( GOOGL ), which we think underscores the ongoing competitive challenges for audience and engagement growth across digital media platforms and properties,” wrote Rosenblatt analyst Martin Pyykkonen. “We would expect large private equity investors to seek a deep discount, perhaps even a take-under relative to Yahoo’s implied market value, with an intent to split the core business apart to try to generate value from the sum of the parts vs. the current whole value of the core business,” Pyykkonen said. Rosenblatt maintains a sell rating and price target of 30 on Yahoo stock. Yahoo stock rose 0.7% to 35.40 in afternoon trading in the stock market today , earlier touching a three-month high of 36.10. Excluding its 15% stake in China e-commerce giant Alibaba Group ( BABA ), Pyykkonen said, “Yahoo’s current market cap implies $3.3 billion valuation for the core business and the Yahoo Japan stake. We think the fundamental outlook for Yahoo as a ‘growth’ stock is continuing to erode, especially in light of strong secular trends which are benefiting the likes of Facebook and Google owner Alphabet, both of which have more revenue concentration from mobile advertising,” he said. Yahoo’s overall market value currently is near $33.5 billion. Is Yahoo The Next DoubleClick? “Financial engineering” alone won’t fix Yahoo’s growth ills, Pyykkonen said. He pointed to the once-public DoubleClick as an example of what might happen with Yahoo. “In 2005, DoubleClick was acquired by private equity firms Hellman, Friedman and JMI Equity for $1.1B and then sold to Alphabet (Google) just two years later, in 2007, for $3.1 billion. The nearly 3x private equity return was due to DoubleClick being a broken company and stock with poor management execution, but also having core technology and a revenue growth outlook,” said Pyykkonen. In a recent securities filing , Yahoo said it has written down the value of its Tumblr operation by 20% as the microblog’s revenue did not meet Yahoo’s internal projection for 2015, he said. A report in The Information said that Yahoo is considering a deal with Facebook to allow the giant social network to sell ads inside Tumblr’s mobile app, with Yahoo and Facebook splitting the revenue. Tumblr is among the few assets within Yahoo whose audience is growing, The Information said. Yahoo CEO Marissa Mayer is under intensified pressure from major investor Starboard Value, which has urged the exit of Mayer and some directors, as well as the spinoff of Yahoo’s core search business. Yahoo directors are close to offering at least two board seats to the activist hedge fund in order to avert a proxy fight, according to a recent New York Post report. Board member nominations are due by March 26, said Pyykkonen. Dozens of groups are expressing interest in buying the struggling Yahoo, say analysts, with Verizon ( VZ ) among those said to be the most likely acquirer. Facebook and Alphabet carry the highest-possible IBD Composite Rating of 99, while Alibaba has a CR of 82 and Yahoo’s CR is just 40. Scalper1 News
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