Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Sell BlackBerry? “No. No, no, no, no, no,” John Chen, chief executive of the still-struggling phone maker, was quoted as saying at a June investor meeting. In his eyes, $9 a share was too low to consider throwing in the towel. Too bad the stock trades lower than that now. 

But Chen has big dreams for the $4 billion company.

Marissa Mayer has big goals, too. And with that she's risking the chance Yahoo winds up just like BlackBerry: A company in decline, losing investor favor and clinging to its independence instead of selling when it had the chance. 

Acquisitions Aren't Helping
Some investors are concerned that the purchases and "acqui-hires" Marissa Mayer is making aren't the best use of Yahoo's cash. Most of the deals have been very small, though.
Source: Bloomberg

Activist investor Starboard Value, the thorn in Mayer's side, is demanding that Yahoo sell its main search and display-advertising business and drop its plan to spin off the company's stake in Alibaba, the Chinese e-commerce giant that listed on the New York Stock Exchange a little more than a year ago. 

Starboard's letter may give readers whiplash. This is the same activist that pushed Yahoo earlier this year to spin off of its Asian assets, and pursue a merger with AOL,  among other things. Even so, Starboard's not wrong:

"The market has a dim view of the company's current strategy. Selling the core business now is the best outcome for Yahoo shareholders," the activist wrote.

Yahoo shares have lost a third of their value this year and are lagging behind 94 percent of the Standard & Poor's 500 index members. About $17 billion of market value has been erased.

It's clear that Yahoo should at least explore a sale. The valuable Asian stakes aside, Yahoo's prospects are too hazy. Its market value is $31 billion, but how long will that last? When that's even a question, it's a sign that the risk of an uncertain future probably outweighs the drawbacks of selling the company today. 

Should there be any interested suitors out there, Yahoo shareholders would be able to command a decent price. The stock is near $33. Slap a 25 to 30 percent premium on that, and an offer wouldn't be too far below where it traded at the end of last year. Of course, this is all predicated on anyone wanting to acquire Yahoo. Coming up with that shortlist is difficult, but it's worth a shot. 

Turnaround or Sale -- Clock is Ticking
Yahoo has one of the worst returns in the S&P 500 this year.
Source: Bloomberg

Look at BlackBerry. Groupon, too. These companies missed their opportunities to sell before they tumbled, and now it's not clear what they'll do. BlackBerry's years of being in and out of play pre-dates Chen's time at the helm. He's been trying to turn around the business and is spending BlackBerry's cash hoard on more software purchases and research and development. Investors aren't giving him credit for these investments yet. 

Groupon, too, is spending money in ways that have yet to pay off. Fewer people are using its daily deals site, so it's going to ramp up marketing, which doesn't solve the problem. The shares traded for $2.79 apiece Thursday, down from more than $10 in early 2014 and its IPO price of $20 four years ago. The now $1.7 billion company famously snubbed a $6 billion acquisition offer from Google in 2010.

Yahoo is in a lot better position than Groupon and BlackBerry, and plenty of analysts still have faith in Mayer. The CEO aside, Yahoo is buttressed by the value of its stakes in Alibaba and Yahoo Japan, so the stock is hanging on. But it's either on the verge of an impressive comeback or its downfall. 

Mayer should take a cue from Tim Armstrong. He sold AOL to Verizon Communications earlier this year for a 24 percent premium, entirely in cash. Verizon saw value in AOL's mobile content and programmatic advertising. 

There could be a company out there that sees the value in Yahoo's search and display advertising assets. It still generates around $4 billion in annual revenue, though that figure is projected to fall next year. That may argue for a sale sooner rather than later. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net