Yahoo (NASDQ: YHOO) recently announced the commencement of modified “Dutch auction” self-tender offer to purchase for cash up to $3 billion of shares of its common stock as it gears up to close its $4.48 billion deal with Verizon for its core assets. While the tender offer is set to expire on June 13,  Yahoo’s stock price has rallied by over 15% in the last three months, primarily due to the 20% increase in Alibaba’s (NYSE:BABA) valuation. We believe that Yahoo’s core business continues to suffer even though its Mavens (Mobile, Video, Native and Social media) revenues have improved considerably. Based on the improvement in Alibaba’s value and the state of its core business, we have revised our price estimate for Yahoo to $50. In this article, we take a closer look at the $3 billion tender offer.
The Terms Of Tender
Under the terms of the tender offer, Yahoo has stated that the price will be equal to “(A) the Alibaba volume-weighted average price, multiplied by (B) multiples specified by tendering stockholders not greater than 0.420 nor less than 0.370, provided that in no event will the purchase price be less than $37.00 per share, less applicable withholding taxes and without interest.”
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Once the tender offer has expired, the company has stated that it will determine a single purchase price, which will not be less than $37.00 per share, that the company will pay for shares that were not tendered. This will enable the company to purchase the maximum number of shares that have been tendered and/or not tendered at an aggregate purchase price not exceeding $3 billion.
Nevertheless, once the tender offer expires, the company will be registered as a closed-end investment company under the Investment Company of 1940 and its shares will be removed from the S&P 500 and other indices. The tender offer not only provides existing shareholders liquidity prior to the closing of the pending sale of Yahoo’s operating business to Verizon, but also provides a mechanism for completing a sizable repurchase of shares more rapidly and returning money to the shareholders.