Yahoo Bids Could Top $8 Billion Given Value of Patents, Real Estate (Study)

Company's core advertising business is worth $1.5 billion: SunTrust analyst

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With the initial round of bids for Yahoo due next week, there’s the question of what prospective acquirers would be getting their hands on — and how much it’s all worth.

And even though Yahoo is the third-biggest Internet player in the U.S. in terms of user reach, most of the company’s value lies in assets outside its core ad business, including its massive patent portfolio, real-estate holdings and royalty payments from Yahoo Japan.

“Based on the upside potential in these assets… we think the ultimate winning bids could come back above” the previously estimated range of $6 billion to $8 billion, SunTrust Robinson Humphrey analyst Bob Peck wrote in a research report Wednesday.

Yahoo’s patent holdings “could fetch more than $3 billion in aggregate if sold to a large enterprise or a consortium,” Peck wrote. Of the company’s approximately 6,000 patents, about 2,000 are active.

Two other “under-appreciated” Yahoo assets are its 1 million square feet of buildings and real estate, which could be worth around $1 billion, and perpetual royalty payments the company receives from Yahoo Japan, in which Yahoo owns a 35.5% stake, worth nearly $1 billion, according to Peck.

Meanwhile, Yahoo’s core advertising business is worth $1.5 billion per Peck’s analysis, calculated as a 5X multiple of the company’s estimated $307 million in earnings before interest, tax, depreciation and amortization for 2016.

The list of expected Yahoo bidders includes Verizon, which last year acquired AOL and is seen by Wall Street as the leading strategic candidate. Others said to be in the mix are the U.K.’s Daily Mail, Time Inc., IAC, CBS, and private-equity firms Bain Capital, KKR and TPG, with about 40 parties in all scoping out Yahoo. Google was reported to be contemplating a bid, but analysts say regulatory concerns make that unlikely.

The key variable determining how much Yahoo could sell for “will be the value of the (intellectual property) and that monetization perspective by the acquirer,” Peck wrote.

As part of a major restructuring plan announced in February, Yahoo said it would explore selling “nonstrategic” patents and real estate this year. Through the end of 2016, the company estimated that could generate between $1 billion and $3 billion in cash.

If Yahoo were to receive $8 billion in gross cash for the core business, shareholders would receive a net $6 billion after taxes, according to Peck.

Separate from the sales process, Yahoo is facing a proxy fight for control of its board of directors. Investor Starboard Value nominated nine candidates for election to Yahoo’s board — seeking to unseat CEO Marissa Mayer and the other current directors — with voting to take place in late June at the annual shareholders meeting.