The Board has formed a Strategic Review Committee of independent directors to lead this effort, with the assistance and support of management. The Strategic Review Committee has engaged Goldman Sachs & Co. Inc., J.P. Morgan and PJT Partners Inc. as its financial advisors, and Cravath, Swaine & Moore LLP as its legal advisor. The Strategic Review Committee and its advisors are establishing a process for outreach to and engagement with potentially interested strategic and financial parties. The Strategic Review Committee will recommend to the Board whether any proposed transaction is in the best interests of the Company and its shareholders.
“The Board recently formed an independent committee to conduct a process to evaluate strategic alternatives for the company. We have hired excellent advisors and are working closely and in alignment with management to pursue an effective process,” said Maynard Webb, Yahoo’s Chairman of the Board. “The Board is thoroughly committed to exploring strategic alternatives while simultaneously supporting management and the employees in their implementation of Yahoo’s strategic plan. We believe that pursuing these complementary paths is in the best interests of our shareholders and will maximize value.”
“Separating our Alibaba stake from Yahoo’s operating business is essential to maximizing value for our shareholders. In addition to the reverse spin, there are strategic alternatives that could help us achieve the separation, while strengthening our business,” said Marissa Mayer, CEO of Yahoo. “As both shareholders and employees, all of us here at Yahoo want to return this iconic company to greatness. We can best achieve this by working with the committee to pursue various strategic alternatives while, in parallel, aggressively executing our strategic plan to strengthen our growth businesses and improve efficiency and profitability.”
The Company does not intend to make any further disclosure regarding these matters until a definitive transaction agreement is reached or a determination has been made that none will be pursued.
Starboard has called for the company to sell its core business immediately, and this is the strongest step the company has yet taken towards that end. Bloomberg reported this weekend that Yahoo would begin approaching possible bidders, including Comcast(CMCSA), AT&T(T) and Verizon(VZ), as well as private equity firms. We would be remiss if we failed to note that all three publicly traded companies are conglomerations of spinoffs.
More interesting to us is the possibility reported this morning by Bloomberg that Time,Inc.(TIME) is preparing a bid for Yahoo’s core assets. Time, of course, was spun off from Time Warner(TWX) in June 2014. Since then, CEO Joe Ripp has been pursuing a strategy to acquire digital assets, including a recent acquisition of onetime highflier MySpace. In many ways, Ripp is trying to create some of the theoretical synergies of Time Warner’s disastrous acquisition of AOL, now owned by Verizon after being spun off.
What makes the possibility of a Time, Inc. acquisition more interesting is that as a smaller acquirer, it would structure the deal as a reverse Morris Trust transaction. This would offer significant tax advantages.
In a famous Saturday Night Live sketch, a young Steve Martin promised that “You too can be a millionaire, and not pay taxes.” While the advice he proceeded to give was ineffective, using a reverse Morris Trust, your favorite company can sell off a division and not pay taxes.
How you ask? Simple. First, borrow as much debt as you can against the division to be sold. Move the cash raised to the parent. Next, spinoff the company to your shareholders. Immediately following the spin, merge the new company with the acquirer, such that the new company’s shareholders control greater than 50% of the merged company’s stock. That’s it. Pretty simple.
This could be an interesting option for Yahoo to maximize value for current shareholders, while giving them the opportunity to participate in future appreciation of the Yahoo core business.
Disclosure: The author holds shares in Yahoo, Comcast, and AT&T