Warren Buffett's Bucket List Part II: Yahoo!
Warren Buffett's Bucket List Part II: Yahoo!
We last mentioned Yahoo! (NASDAQ: YHOO ) on our April 22 podcast A Shotgun Wedding For Yahoo! Since then, news broke that Warren Buffett is backing a group led by Quicken Loans founder Dan Gilbert bidding for the Yahoo core business. A lot of people were surprised, but this makes a lot of sense to me. Why was there surprise? Well, it is a technology company. Also, Yahoo is selling in an auction, which Buffett hates.
Why does Buffett's move make sense? He has Yahoo ties. Yahoo broadcasts the Berkshire (NYSE: BRK.A ) (NYSE: BRK.B ) annual meeting. Yahoo's former CFO and president Susan Decker sits on Berkshire's board. Buffett loves buying struggling businesses that have a large consumer reach. Yahoo at this point may not be a technology business so much as a media plus advertising business, two sectors that Buffett has great expertise in, from Capital Cities/ABC, to newspapers, and the Washington Post.
Buffett has been buying up struggling newspapers at low multiples. It is somewhat reminiscent of his Media General (NYSE: MEG ) deal. He bought their newspapers and provided the rest of the business the financing it needed in exchange for 20% of the company. That stock has a total return of over 300% since he did the deal in May 2012.
Buffett loves providing financing to investors that he respects. He would likely provide high yielding preferred that can convert to equity to finance the deal. It is very similar to how he helps finance 3G bids. Buffett loves preferred stock; almost all of his financial crisis deals were preferred stock. He views them as a bet that companies won't go out of business. That could be his view here.
Ultimately, it is unlikely that Buffett's group will win. Verizon (NYSE: VZ ) is the most natural buyer given synergies with AOL. Buffett will be very cost disciplined in any bid he finances, which is not great for an auction. However, as I mention at the end of this podcast , he should get lots of credit and gratitude for participating in the process. If you are interested in learning more about Yahoo, check out Marissa Mayer and the Fight to Save Yahoo!
