REUTERS/Denis Balibouse Marissa Mayer, Chief Executive Officer of Yahoo, speaks during a session at the World Economic Forum (WEF) in Davos January 25, 2014. This morning, the New York Times Magazine published a long adaptation of a book called "Marissa Mayer and the Fight to Save Yahoo!"
(Disclosure: the author of this post wrote both.)
Buried at the bottom of the Times story, there's this news: "Major Yahoo shareholders have recently begun collaborating on a series of spreadsheets that calculate that AOL and Yahoo are worth between 70 and 80 percent more when combined than they are apart."
We've seen a version of this spreadsheet.
Here's the breakdown:
- It assumes that Yahoo will soon split into two companies -one, a holding company for Yahoo's stakes in Yahoo Japan and Alibaba, and another, the core Yahoo business
- It says the core Yahoo business will be worth about $5.5 billion.
- It notes that AOL's current market cap floating around $3.3 billion.
- It suggests that, even though AOL will technically be the acquirer, a new, combined Yahoo-AOL will be ~35% owned by current AOL shareholders and ~65% owned by current Yahoo shareholders.
- You'd think that combining $5.5 billion and $3.3 billion companies would make a $8.8 billion company. The spreadsheet say that the company will actually be worth $15.8 billion.
- It gets there two ways.
- First, it says that combining the companies will create a "cost synergy" of $1 billion, raising a combined operating income from ~$1.5 billion to ~$2.5 billion.
- Second, it argues that the new company, run by AOL, will trade at AOL's earnings multiple of 6.2, rather than Yahoo's core business, closer to 1.
- 6.2 multiplied by $2.5 billion equals $15.8 billion.
We've heard that AOL CEO Tim Armstrong has also seen a version of this spreadsheet and that he'd be willing to consider a deal. This makes sense. He is AOL's largest shareholder, and he would make a lot of money increasing the value of that stake by 70% or more.
It's less likely that Mayer will do a deal. Over the summer, her M&A chief, Jackie Reses, said that AOL may be acquired - but not by Yahoo.
Also over the summer, there were many reports about Mayer and Armstrong meeting for a drink during a conference put on by investment bank Allen & Co in Sun Valley. We've heard the meeting was not a serious business meeting. Evidence: Mayer's husband, Zach Bogue, attended.