Comcast to Buy Yahoo?

What the experts are saying as rumors swirl.

Comcast-YahooYahoo may not be officially up for sale, but that hasn’t stopped rumors from swirling about who might buy the beleaguered 20-year-old tech pioneer — and guess who’s name keeps popping up: Comcast.

Yahoo is reportedly weighing a few options. Should it spin-off of its $30 billion stake in Alibaba, the Chinese e-commerce giant? Should it find a buyer for its core business operations. Should it pursue some other strategy?

If it does sell, Comcast could be a bidder, say some experts.

The Wall Street Journal reported last week that: “SunTrust analyst Robert Peck said there could be many logical buyers for the Internet business, including Verizon, AT&T Inc., Comcast Corp.,Walt Disney Co., and News Corp.” It also reported that Comcast could be a fit considering that it’s “been building up advertising-technology capabilities through acquisitions of firms such as FreeWheel and Visible World.”

On Friday, Mizuho Securities analysts Neil Doshi and San Phan identified Comcast as the best buyer for Yahoo.

“It remains unclear if the IRS will tax the spin-out of Aabaco, but in our view, a taxed transaction on a likely $3-$5b sale of the core Yahoo business outweighs the risk of the company/shareholders being hit with a $20b IRS tax bill on a spin-out of Aabaco,” they said, according to Barron’s. We think the best option for Yahoo would be to sell its core biz to a strong strategic buyer – namely Comcast.”

Here are Doshi and Phan’s four reasons that Comcast should buy Yahoo:

  1. Skepticism about another turnaround plan at Yahoo.
  2. Comcast already has significant digital assets.
  3. Yahoo! has key assets that could accelerate Comcast’s ad business.
  4. It makes financial sense. Comcast has $48 billion in debt, but is expected to generate $25 billion in EBITDA in 2015. Increasing its debt level by $2 to $3 billion to purchase the core Yahoo business would still maintain a debt-to-EBITDA ratio of 2x.
But on Monday, Inder Singh from SunTrust Robinson Humphrey wrote that a buyout by Comcast is not likely, according to Barron’s. That’s because Comcast would likely want some Yahoo assets but not others. One example is content. With NBC-Universal under its belt, would Comcast really want Yahoo’s content (like those Katie Couric interviews)?
“We believe there are some adtech assets, for example BrightRoll (online video advertising), which Comcast may be interested in but we believe CMCSA is unlikely to acquire all of core Yahoo to get these assets,” said Singh, according to Barron’s.

Although Yahoo! has some great name recognition, it comes with its share of problems. “Yahoo’s traditional strength, selling desktop display advertising to large advertisers, is in a broad decline,” the WSJ reported. “The company, once the first stop for many brands when spending ad budgets online, has been eclipsed by Facebook Inc. and Google Inc. Yahoo is expected to pull in 4.4% of the $58.12 billion U.S. digital advertising market in 2015, according to research firm eMarketer, down from 5.1% last year.”

If it does sell, expect Yahoo CEO Marissa Mayer to be in line to collect a hefty golden parachute. USA Today said “her severance plan — which would kick in if she is terminated without cause due to a change of control of the company — would have been worth $157.9 million in 2014, according to a company tabulation in corporate filings.” But that was back when the stock was much higher. Fortune noted that number will actually be closer to $108 million.

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