Once again the news has me speculating about Yahoo's eventual fate, this time as an acquisition target for SBC. (The image, by the way, is from SBC's own support pages.)
The story is that the regional Bell and the Web portal are expanding their alliance, putting the Yahoo brand on SBC's mobile offerings as well as expanding the effort in DSL.
But could this just be the prelude to a marriage?
SBC would still be the acquirer. Despite its phenomenal gains of the last two years, Yahoo is now worth about $51 billion, less than its value at the height of the dot-boom. SBC, by contrast, is worth roughly $86 billion.
Why would SBC buy? Here's why. Had it done a deal in late 2002, SBC would now look like a hot stock for a telecom, and wouldn't be treading water. If SBC's equity value were growing, it could pick up other phone firms and really grow.
Why would Yahoo sell? Maybe it doesn't entirely believe its own good fortune. It's current price-earnings multiple is at nearly 100, and many shareholders must remember what happened the last time their bubble burst. A second bust could kill them.
What would be the result? I don't know, frankly. Any contract would have to be handled very, very gently. Yahoo's operating autonomy would have to be maintained explicitly, or its bubble really would burst the moment the deal was announced.
But it has possibilities...I'm guessing at least one investment banker is dreaming sweet dreams tonight.
I just don't see how you reconcile the way Wall Street values the two companies. Would the combined company be a growth company that should be valued at an extravagent multiple or a value company that is more about the dividends than the multiple. This is the same problem you have right now with Verizon and why people keep expecting them to spin off Verizon Wireless. This type of merger only benefits investment bankers. Let SBC have the controling stake in Yahoo, but leave it as a seperate company -- that is what is best for the shareholders of both companies. If SBC is going to pull the trigger on any super deals, I expect the buy-out of Bellsouth's 40% of cingular to come first, followed by taking that company public.
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