Thursday, December 03, 2015

Modest Proposal To Save Yahoo

Memorandum To: Yahoo's Board of Directors

From:  Anthony Alfidi, CEO of Alfidi Capital

Subject: Modest Proposal To Save Yahoo

Hello there, board people. I noticed some recent news articles about how your board is considering some serious pruning at Yahoo. I'll offer a brief outline of what I think you should do before shopping around to some private equity firms. I am available to discuss this plan over lunch at a fine Palo Alto restaurant provided I don't have to pay the bill.

First, sell Yahoo's Alibaba stake to the first taker. No one outside of China's ruling elite knows how to fairly value Alibaba. China's securities rules and Alibaba's own corporate structure are so opaque to Western observers that any continued involvement risks a very bad surprise. I strongly suspect a lot of Chinese-domiciled companies whose shares trade in US markets are not doing nearly as well as they or their Wall Street enablers claim.

Next, spin off every property not directly touching Yahoo's longtime core functions of search and email. Google did something similar recently when it split off its more experimental projects into Alphabet. The Yahoo spinoff will thus be a collection of multimedia projects that probably don't work well with search and email anyway. The spinoff would be an attractive acquisition target for a large media company that wants to leverage its legacy cable broadcasting infrastructure into new digital things.

Finally, offer the remaining rump of Yahoo, based on search and email, to Microsoft as an acquisition. The offer should recapture the intent of Microsoft's 2008 attempted acquisition that would have added Yahoo's search capability and email user base to Microsoft's more successful product lines. Microsoft is already the cloud provider that Yahoo will never become. Unwinding the unneeded parts of Yahoo is best done before integrating with Microsoft, as it reduces inevitable cultural friction.

Please thank Ms. Mayer and her Yahoo team once all three deals are complete. They have tried their best but they are not helping Yahoo remain an independent company. I do not foresee a role for any of them at Microsoft or a media company after they are done with Yahoo. They have not proven their ability to integrate media projects with search or anything else. Maybe they could land at startups after their golden parachutes deploy. They can learn to be hungry and push for growth all over again.

The Alibaba sale and media property spinoffs should add enough cash to Yahoo's treasury to make the rump company palatable for Microsoft to safely digest. I'm not going to run the numbers on this scenario because that's not my job. I'm the "idea guy" here. My big idea restores Yahoo to its best value proposition and ends its odd status as the only 1990s-style Web portal business model still standing in the cloud age. Its legacy projects will survive in other companies whose business models are more coherent. Saving Yahoo means ending its independence. Let's close the books on this original dot-com era story.

Full disclosure: No position in Yahoo, Microsoft, or any media company at this time.