What Will Yahoo!’s Mayer Do With All That Cash?

What Will Yahoo!’s Mayer Do With All That Cash?
News
Like Us On Facebook
Like Us On Facebook

Yahoo! (YHOO) CEO Marissa Mayer has not been on the job a month, but she’s already making some bold steps to try to change the company’s fortune. Now it looks like she’s changing the fortunes of shareholders as well.

Yahoo! filed an 8-K discussing the use of the cash the company is expected to receive from its deal withAlibaba, of which it owns a significant portion. Yahoo! is set to receive $7.1 billion from Alibaba as the Chinese e-commerce company buys back half of the stake Yahoo! owns.

The original plan was to return this cash to shareholders in the form of a buyback. Mayer appears to be putting her foot down and changing that plan. Here’s the requisite part that signaled a change in thinking.

As reported in our Form 10-Q for the quarter ended June 30, 2012 filed today with the Securities and Exchange Commission, Ms. Mayer is engaging in a review of the Company’s business strategy to enhance long term shareholder value. As part of that review, Ms. Mayer intends to review with the Board of Directors, among other things, the Company’s growth and acquisition strategy, the restructuring plan we began implementing in the second quarter of 2012, and the Company’s cash position and planned capital allocation strategy. This review process may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase under the Share Repurchase and Preference Share Sale Agreement we entered into on May 20, 2012 with Alibaba Group Holding Limited.

It’s unclear what Yahoo!’s largest shareholder thinks of the plan. Third Point, run by hedge fund honcho Daniel Loeb, is Yahoo!’s largest institutional shareholder, with 5.77% of the stock, according to Thomson Reuters. Third Point could not be reached for comment for this story.

Yahoo! has had a number of CEOs over the past 12 months (Carol Bartz, Tim Morse, Scott Thompson, Ross Levinsohn and now Mayer), as well as a number of strategies. That’s confused investors, and this change of plan may confuse investors even more. Barclays Capital analyst Anthony DiClemente said the development is “somewhat concerning.” He noted a change in sentiment around Yahoo! recently, largely due to the positive buzz surrounding Mayer’s hire and the buyback.

“However, given tonight’s filing, we believe that concerns around a smaller-than-expected buyback could remain a headwind until investors get more clarity,” DiClemente wrote in a research report. He rates Yahoo! equal-weight with an $18 price target.

Pivotal Research Group analyst Brian Wieser echoed those sentiments, suggesting investors take “a ‘wait and see’ approach.” Wieser rated shares buy with a $19 price target.

Mayer’s strategy, although not laid out in full, is reportedly to “leverage the company’s strong franchises,” and improve its focus on search. Wieser noted the change in strategies from Levinsohn to Mayer, as Mayer focuses more on growth initiatives, and “improve its core product offerings rather than to generate cash or profits as a first priority.”

If the cash is not returned to shareholders and acquisitions are indeed a part of the plan, there are several names which have been mentioned before as potential takeover targets.

HuluThe Weather Channel, and TripAdvisor (TRIP) were names that were floated as part of the cash-rich split deal between Alibaba and Yahoo! that ultimately went nowhere. Ironfire Capital founder and president Eric Jackson suggested others as well.

“Lots of good ones out there,” Jackson said in an email. He mentioned Yelp (YELP), Open Table (OPEN) and Zillow (Z), in addition to Trip Advisor.

Zillow already has a relationship with Yahoo!, as the company runs Yahoo! Real Estate, one of the largest real estate portals on the Internet. Zillow could not be reached for comment on this story.

Investors have initially reacted to this news negatively, sending shares lower in Friday trading. Should Mayer successfully integrate one (or more) of the aforementioned names, investors might want to think otherwise.

The Street

Share Tweet
React
Like Us On Facebook
Like Us On Facebook

Julian Sonny

From the sandy beaches of Hawaii, to the streets of New York: Julian has seen it all. His lifetime of travels has given him a broad scope of knowledge and an eclectic taste unlike any other in the tri-state area. Julian has often been compared to cultural icon, The Rock, because of his unequivocal work ethic and warrior-like stature.

More In News

World Alexia LaFata

Teen Dies After Getting Electrocuted By Her iPhone In Her Sleep

An 18-year-old teenager died in her sleep when her iPhone 4S electrocuted her while it was charging overnight. The teen’s sister found her dead in her bedroom, covered in burns and lying next to a destroyed iPhone. The unnamed 18-year-old had liver mortis across her hands, neck and leg, and experts from the Forensic Science Association […]

World Alexia LaFata

This Couple’s Road Trip Sign Language Song Is Better Than Any Lip Sync Video

Road trips can be boring. Some people spice them up with a belting sing along. Others, like American Sign Language interpreter Tina Cleveland and fiancé Paul Sirimarco, spice them up with something a little quieter, but a lot more impressive: signing.  During this road trip, the couple performed the “Grease” classic, “You’re the One That I Want,” completely in […]

Also On Elite

World

China Has Quarantined An Entire Town After Resident Dies Of Bubonic Plague

The Chinese city of Yumen has been sealed off after a resident died of bubonic plague last week. The 151 people who confessed to coming into some sort of physical contact with the 38-year-old man are being kept in quarantine, and the rest of the city’s 30,000 residents are prohibited from leaving by police roadblocks. […]

Humor

18 Times Patrick Star Absolutely Proved He Was The Stoner Of Bikini Bottom

Patrick Star is a supporting character from the children’s television show “Spongebob Squarepants.” There are a number of traits you could use to describe Patrick, but “dumb” is far and away the obvious choice. You could also say he’s “innocent” or “simple-minded,” but regardless of the exact terminology, the sentiment remains the same. The show […]

Film

Video Showing You Everything From Your Childhood Will Leave You Oozing Nostalgia

It seems that everything we held near and dear as kids is now being turned into a movie. There’s Michael Bay’s “Teenage Mutant Ninja Turtles” movie. There’s Michael Bay’s “Transformers.” There’s “The Lego Movie.” And now Wil Wheaton brings us “Literally Everything Else From Your Childhood: The Movie.” Obviously, this isn’t a real movie, but […]

Food

4 Ways Cooking Shows Will Teach You More Than Just How To Follow A Recipe

I love watching cooking shows. Although most people who watch them probably just end up drooling over the screen and subsequently poking around on their Seamless app, if you genuinely pay mind while watching, you can actually learn a thing or two. Here are a couple tips I’ve acquired by watching some of the best […]

World

ISIS Has Taken Control Of A Former Chemical Weapons Plant In Iraq

The Islamic State (formerly known as ISIS) has seized a chemical weapons facility containing the remains of thousands of rockets filled with deadly nerve agents such as sarin. Located in the city of Muthanna northwest of Baghdad, the facility held the chemical weapons used by former Iraqi dictator Saddam Hussein, idolized by the extremists. UN […]