Yahoo! Inc.’s
(NDAQ: YHOO) recent attempts to convince shareholders that Microsoft
Corporation’s (NDAQ: MSFT) bid significantly undervalues the company
have yielded very little. However, some people (1, 2)
are now beginning to question why they haven’t mentioned a big piece of
the puzzle - Yahoo’s stake in Asia. Yahoo’s stake in Yahoo Japan and
China’s Alibaba alone are valued at around $11 billion by most
analysts. Meanwhile, many others peg the true value much higher given
the enormous growth potential in these markets. The search company’s
dominance in these markets is well ahead of Microsoft and Google Inc.
(NDAQ: GOOG) and could be a good argument for a buyout price higher
than $50 billion.
Yahoo’s stake in Alibaba, which stands at around 39 percent, paid
huge dividends after being acquired for $1.7 billion in August of 2005.
Since then, the company has IPO’d and dramatically grew in market value
while also continuing to grow its revenues at a break-neck pace.
Interestingly, Alibaba is also concerned about the Microsoft
acquisition, saying that it has a “reputation of using monopolistic
tactics”. Foreign control of large companies is also a politically
sensitive issue for Beijing, which has forced many prospective buyers
to cut their stakes or sipmly delay the application process
indefinitely.
Yahoo’s stake in Alibaba combined with its 34% of Yahoo Japan
represent strategic high-growth investments that are just now starting
to pay dividends. The U.S. markets are beginning to slow in online
advertising and these Asian markets may by the key to driving future
growth. The search company’s substantial investment in this area may
only be worth $11 billion now, but it could very well be worth much
more in the future as growth picks up. Many are now calling for Yahoo
to work these numbers along with their existing calculations in order
to come up with a clearly derived $40 per share valuation that they can
take to Microsoft and use to negotiate a higher price.
In the end, Yahoo will probably end up being acquired by Microsoft.
Management has had many opportunities to turn around the company and it
would take a substantial amount of time to reach the $50 billion
valuation that Microsoft has offered to pay. So, it is now up to the
board to convince shareholders that they deserve a higher price.
Whether or not they can do this remains to be seen, but many are now
saying that they should attempt to place a higher value on their Asian
stakes. Combined, these factors make YHOO a stock worth watching over
the next few months!
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