
Warren Buffett and Dan Gilbert Unite in Bid to Acquire Yahoo - interconnector
http://www.nytimes.com/2016/05/16/business/dealbook/warren-buffett-and-dan-gilbert-unite-in-bid-to-acquire-yahoo.html
======
howlingfantods
Buffett is no fool. Berkshire is providing the financing to Dan Gilbert's
group and will receive guaranteed interest as well as an option to convert to
equity. I'm sure that financing is jammed packed with warrants and covenants.

Buffett has basically parlayed the prestige of his name into sweetheart deals
with provisions that no other company could get (eg. his investment in Goldman
Sachs).

~~~
samstave
But who cares about yahoo? (Serious question) yahoo should just die. Please
tell me why it shouldn't

~~~
ergothus
As a consumer, it might make sense to say this.

From a business perspective (he says having no business experience or
expertise), Yahoo is a collection of assets: Code, people, branding,
community. They aren't in first place, and they aren't profitable at the
moment, but I think the case that they have zero or negative value is a bit
simplistic.

Put it another way: Would you rather throw a pile of money at trying to build
a collection of code, talent, business contracts, and users from scratch, or
would you rather buy an EXISTING collection, on the cheap, and work instead to
flip it into a profitable business? Both are risky ventures, but everything
I've seen says it's harder to build from scratch than it is to keep existing
users.

Perhaps your answer is that you'd prefer to build it from scratch, but do you
see why - if the answer takes some thought to determine - that someone else
might come to a different conclusion?

Heck, even if you want to completely toss the business model - even if you
want to toss everything they've done and what they are trying to do - I'd
imagine the servers, in-house expertise, and collected code and utilities, not
to mention any purchased or licensed software, would make Yahoo worth
considering as an acquisition.

~~~
EdHominem
Yes, of course it has some teardown value. Billions in Ali Baba stock if
nothing else.

But that's not what you're suggesting - doubling down by doing more of what
they've been doing. This assumes that what they're doing has some useful
foundation you can find and build on.

There are essentially zero Yahoo users, especially of any service that's
remotely monetizable. People who use Yahoo are people whose ISP set it as
their default homepage ten years ago.

You can hear the fail in their words. They're talking about retaining users,
not offering value. They still want to be a portal (ie the base of every
action you take), something users didn't want when it was new.

That's the business legacy you'd have to reverse before you stop producing
negative-value, let alone actually produce something that may actually be
valuable.

~~~
bzbarsky
A fair number of people use Yahoo mail and Yahoo search. It's not a majority
of the market by any means, but it's still tens to hundreds of millions of
users all told.

~~~
drdeca
They also own tumblr iirc.

I don't know if tumblr is profitable, but it has many users.

edit: whoops this was already mentioned a number of times in other comments.

------
ChuckMcM
I find these things amusing "according to people who aren't authorized to
speak publicly" except that they are talking to a reporter so that's kinda
public. But really what they want to do is let potential other players know
that "oh yeah, its real, we're bringing it and we're gone sell this thing, if
you want a piece of this you better wake up and call us or your going to lose
out." kind of vibe which attempts to incent other buyers to please make a bid
and bring the price up. According to the Credite Suisse banker who helped with
a transaction I participated in the ideal number of buyers is 3, and it helps
if at least two of them both know each other and are competitive (think
Benioff and Ellison for example).

I can see Microsoft's goal, add it the Bing group and give Bing the portal as
well as it already has all the search traffic. Not so clearly on Berkshire
though, breaking it up works if you can get it at the right price. I could
also see IAC wanting to play, they could use a portal property to link all
their front ends together.

~~~
jeroen
> "according to people who aren't authorized to speak publicly" except that
> they are talking to a reporter so that's kinda public.

They are speaking publicly, but they "aren't authorised" to do so.

------
gtk40
Looking forward to a redesign of Yahoo! to match Berkshire Hathaway's website:
[http://www.berkshirehathaway.com/](http://www.berkshirehathaway.com/)

~~~
simula67
I can't believe that is the website for the company which made Buffet the
second richest man on the planet.

~~~
lmm
It works. It's not overdesigned. Compare
[http://motherfuckingwebsite.com/](http://motherfuckingwebsite.com/) , or
think back to how amazon or ebay's pages looked for the longest time. More
pages should look like that.

------
JoshTriplett
It's not obvious what the acquiring group mentioned in this article would do
with Yahoo after they've bought it, to make it worth the price. They'd have
the 5th most visited domain name on the Internet, but as Yahoo has
demonstrated, visits don't automatically turn into money. (Twitter has a
similar problem, and sits at #8, but they have a social aspect that Yahoo
doesn't.)

Unless Alibaba comes with the purchase at a discount, or someone wants to
acqui-hire whatever talent hasn't already fled, an acquisition doesn't seem
even remotely sensible.

A few quick checks suggest that Yahoo's searches-per-day traffic is still
decent, at 12.4% of the market (2.2 billion searches/month); perhaps
redirecting that to some competing search engine might be worth it for a cheap
enough price.

~~~
sb057
It's funny you mention Alibaba. I did a little digging, and it turns out that
Softbank (who owns ~35% of Alibaba to Yahoo's ~24%) has a 35% stake in Yahoo
Japan. Very interesting stuff.

~~~
TazeTSchnitzel
Yahoo! Japan is a separate company from Yahoo, Inc. It was formed as a joint
venture between Yahoo, Inc. and SoftBank, thus both of them holding a stake.

~~~
gcb0
and what reason it had to jump on alibaba?

~~~
TazeTSchnitzel
Yahoo had a smart CEO who realised Alibaba's potential, that's all.

~~~
gcb0
was asking about softbank

------
yalogin
Doesn't Buffet famously stay away from Tech? What changed? He is buying Yahoo
and has invested in Apple.

~~~
hristov
Probably valuations dropped low enough that yahoo can be valued as a classic
media company instead of a tech company.

What generally scares Buffet from tech is that the price of tech stocks is
greatly inflated to reflect expectations of future growth. Buffet is very
skeptical of inflated expectations of future growth.

But I do not think there is any great expectations of future growth in yahoo.
In fact many analysts say that if you strip out the valuable asian assets, the
value implied by the market for Yahoo's US business is about zero or even
negative.

So the answer is that Yahoo is not really a tech stock anymore, but the
traditional definition of that term. At least it is not priced like a tech
stock.

~~~
ori_b
> In fact many analysts say that if you strip out the valuable asian assets,
> the value implied by the market for Yahoo's US business is about zero or
> even negative.

If the value implied by the stock price is zero or negative, then even buying
the company and selling off the office furniture nets you a tidy profit.

More realistically, it's very likely that if a company has negative value --
ie, that someone would pay you to take it off their hands -- then it is
severely undervalued.

~~~
avar
I don't think that's true. Even badly performing companies like Yahoo! aren't
only priced as a sum of their physical assets, but also intangible ones, e.g.
the skills of their employees, their market position etc.

~~~
daemin
Someone actually did a calculation of this just recently, like about a month
ago max. Adding up the Alibaba stake, the Yahoo Japan stake, the office and
associated infrastructure, that summing those up totalled far less than the
current share price. Somewhere around -8 billion IIRC.

~~~
vonmoltke
It was a Bloomberg article[1] of rather disappointing quality. The authors
apparently just took the market values of BABA and Yahoo! Japan, multiplied by
Yahoo!'s percentage stake, added some unsourced number for cash and assets,
and arrived at -$8 billion. They even included the statement, "The
implication: Everything you think of as Yahoo—apps, websites, employees,
computers, buildings—has a negative value."

It's terribly sloppy logic that led to this, as a pass through Yahoo!'s
balance sheet[2] demonstrates. "Long-term Investments", which I presume
includes their stakes in Alibaba and Yahoo! Japan, is listed as $34B (not the
$38B in the article). Adding all other assets gets to a grand total of $44.1B.
However, that is _gross asset value_ , not _book value_. Now you have to take
off the liabilities. Yahoo! apparently has $13 _billion_ in deferred income
tax on the books. It has about $13B in other liabilities, cutting its book
value to about $28.4B and giving Yahoo! a price/book ratio of 1.21, not 0.81
as that analysis erroneously concluded.

You can't just compare gross assets to stock price and expect anything
meaningful, and you sure as hell can't compare the values of a couple cherry-
picked assets that sum up greater than the net equity and claim the entire
rest of the business is worth a negative amount. I find it pretty shameful
that Bloomberg actually published that clickbaity bullshit.

Yahoo!'s problem right now is not that their traditional businesses are
unprofitable. Their problem is the massive liabilities they have on their
books.

[1]
[http://www.bloomberg.com/features/2016-yahoo/](http://www.bloomberg.com/features/2016-yahoo/)

[2]
[https://www.google.com/finance?q=NASDAQ%3AYHOO&fstype=ii&ei=...](https://www.google.com/finance?q=NASDAQ%3AYHOO&fstype=ii&ei=UWQ6V5nID4eqjAHe67mwAg)

------
chrisan
This is the emotional Dan Gilbert who enjoys Comic Sans

[http://deadspin.com/the-cavaliers-finally-took-down-dan-
gilb...](http://deadspin.com/the-cavaliers-finally-took-down-dan-gilberts-
insane-com-1601145301)

~~~
georgehotelling
I'm an ex-Quicken Loans employee, and my best guess is that Dan enjoys Comic
Sans so much because of the reaction it gets. The billionaire equivalent of
trolling.

To that end, while working on the web team we added a Konami code to the QL
website that would change the entire site to Comic Sans. I just checked and
sadly that Easter Egg got lost in a redesign.

------
icc97
Buffett is a fan of the “cigar butts with one last puff left” [1]. It seems
like he's applying a similar philosophy here.

[1]: [http://basehitinvesting.com/warren-buffett-letter-on-
walter-...](http://basehitinvesting.com/warren-buffett-letter-on-walter-
schloss/)

------
1024core
As a shareholder, I welcome the competition. :)

Also interestingly: Bain Capital is in the running. In the past, Yahoo has
used Bain Capital as consultants to reorg, restructure, etc. It would almost
seem like a conflict of interest, since they are acutely familiar with the
innards of Yahoo.

Edit: as /u/mcmoose75 mentions below, "Bain Capital" and "Bain Consulting"
(the one I was thinking of) are two separate entities.

~~~
mcmoose75
You may be confusing Bain & Company (the consulting firm, a competitor to
McKinsey) and Bain Capital. Bain Capital was started by some former Bain
consultants, and is obviously similarly named, but is a totally independent
organization.

~~~
1024core
You are probably right. Sorry for the confusion.

------
strictnein
Read this first as "Warren Buffet and Dilbert Unite in Bid to Acquire Yahoo".
I think I prefer that headline.

------
ppierald
Sue Decker, ex-Yahoo CFO & President sits on the Board of Directors for
Birkshire Hathaway. I'm sure she has plenty of insight to the value of the
company, and the complexities of its business.

------
jonbarker
I've been following Buffett since the 1990s and his reputation for shunning
tech seems to be based on his wise choice not to play in tech in the late
1990s. This seems to be based on relatively simple valuation techniques as
well as asking the important question "Do I understand the business?". Of
course he missed some winners as a result of this but overall it helped his
results. His two tech moves so far, IBM and Apple, don't violate that approach
at all so it makes sense.

------
tgb29
When I consider Yahoo's value, I think of email, fantasy football, news, and
tumblr. All four seem to be struggling when compared to their alternatives,
but each of the products appear to have great potential value. It's hard to
determine the quality of Mayer's work as CEO; some decisions were good, some
look bad. I'm not confident she is a product person, and this is based on her
management of Tumblr and the lack of development in email functionality and
UI.

I could be wrong. I do go to Yahoo news everyday and it's not a bad service.
It's fun to think about what the world would be today if Yahoo acquired
Facebook LOL.

~~~
MicroBerto
Were I to take on Yahoo, I'd turn it into a content powerhouse, with
supporting tools. Yahoo! Finance should have the best articles -- very
technical yet explanatory -- all supported by their stock tools. A billion
ways to monetize that.

I would use Yahoo! Sports to _seriously_ go after ESPN, which is turning into
a turdpile of garbage that's worse than TMZ. I'd literally troll them and get
some extremely technical content as well as the fun stuff. Monetize with
fantasy, tickets, live stream, schwag, etc.

Rinse and repeat with other news sectors. I'd find about a dozen niches and
build out some aggregators with trending stuff - basically DrudgeReport style
aggregators for each niche - awesome headlines and all.

Eventually, steer some content towards consumer facing products, and build out
a shopping engine for the ones that are consumer-related.

Would this be the next Facebook or Google? No. But it'd be profitable as hell
and with the right no-holds-barred content team in each niche, it'd once again
become intertwined with American culture. It would "never" die, and it'd be a
true fighter for the first amendment.

I don't deal with apps so I'd hire one of you guys to be my #2 for that side
of the game.

Buffett and Gilbert you know who to call when you want this company to become
relevant again.

~~~
adventured
It would cost billions of dollars to even attempt to go after ESPN. The
primary value ESPN offers today is ownership of broadcast rights. Yahoo can't
afford to outbid Disney on those rights and shareholders would never support
risking that much capital on such.

What you're describing would never make money. Aggregator sites are among the
worst things you could ever attempt if your goal is to make money, which is
why so many of them fail and or produce mediocre business outcomes.

Drudge is a unique outcome that is nearly impossible to repeat - which is why
nobody has been able to replicate it after all of these years. Its popularity
occurred solely due to the Clinton impeachment scandal and two decades of
brand / trust building when it comes to editing.

Having a juggernaut of articles and content in business / finance is worth
_very_ little. You could combine TheStreet.com, Marketwatch.com, Quartz,
Seeking Alpha, Fool.com and Business Insider all under one umbrella and it
would be worth less than a billion dollars and barely make any money. It would
be a complete waste of time and wouldn't move the needle on Yahoo's business.

~~~
MicroBerto
> It would cost billions of dollars to even attempt to go after ESPN. The
> primary value ESPN offers today is ownership of broadcast rights. Yahoo
> can't afford to outbid Disney on those rights and shareholders would never
> support risking that much capital on such.

I'm talking about web-based content first. Anyone who follows sports knows
that there is a _wide_ open gap ready for someone to take a swing on actual
sports coverage. ESPN has turned into a steaming pile of trash. You want more
articles on Johnny Manziel, have at it ESPN. We're gonna cover _real_ sports
on my Yahoo.

The better broadcasting play is to get into streaming / broadcasting for new
sports. Be it eSports, rugby, lacrosse, and any scrap of basketball you can
get your hands on -- NFL is going to collapse in the next generation or so
(ask any Gen-X parents if their kids are allowed to play football and you'll
understand why) -- so just give up on getting rights to the current powerhouse
sports for the time being.

> What you're describing would never make money.

Killer content _always_ makes money when you know your demographic and don't
sell your soul too much. I wouldn't emphasize the aggregators, those would be
portals. The trick is that much of it would be re-written on the actual Yahoo
site by _real_ journalists once something gets hot. Then you no longer give
the traffic away.

> It would be a complete waste of time and wouldn't move the needle on Yahoo's
> business.

This is because you don't know how to monetize. Content isn't the end game,
it's the easy advertising. Yahoo! Finance is an under-utilized tool. The
content on a powerful domain like that would be used to inexpensively gather
new users into the profitable toolset - the end game could be to build out a
trading platform, for instance.

LOL at Yahoo's needle, BTW.

------
geogra4
Wonder if he'll bring a chunk of Yahoo to Detroit?

~~~
Kinnard
I can't imagine he has any other plan. I'm a Detroiter. Too bad Yahoo isn't
really a tech company:
[http://www.paulgraham.com/yahoo.html](http://www.paulgraham.com/yahoo.html)

~~~
mathattack
What's the Detroit connection with Warren and Yahoo? I must have missed that
in all the articles.

~~~
maxerickson
Gilbert.

[https://en.wikipedia.org/wiki/Dan_Gilbert_%28businessman%29#...](https://en.wikipedia.org/wiki/Dan_Gilbert_%28businessman%29#Detroit_initiatives)

~~~
mathattack
Ahhh - interesting. If he can convince the top U of M grads to stay in Detroit
rather than heading for the costs, he may be able to pull something off.

Are there many success stories of Silicon Valley companies leaving the Valley?

------
anonql
I'm weary of this. As a Detroiter I'm not a fan of Gilbert.

Though the prospect of bringing a large tech co to Detroit is nice, Gilbert
and his people are very unpleasant to work with. They pay lip service to the
importance of technology but generally don't respect tech people, or know how
a real tech company operates. Not to mention their questionable morals
(politically manipulating the State of Ohio so they could have a casino
monopoly, instant mortgages, reverse mortgages, etc.).

Firstly, the Bizdom incubator was a mess. Very poorly run. Not a single
successful business came out of it. No actual founders taught students. Just
ex-QL people or trusted friends; the only thing in common was that none of
them had ever started or ran a startup. Most of the startups that gained any
traction did so by selling to Gilbert's other companies rather than proving
that they have a real market - lots of incest going on.

On top of that, some entrepreneurs got straight-up screwed. At a minimum, by
highly abusive investment terms (such as Bizdom owning 67% of the company and
having the ability to modify operating agreements at will) - and to top it
off, multiple founders in their system have had their ideas ripped off by
Gilbert's people.

That's on top of their ridiculous real estate ventures. Such as offering
startups hip, beautiful office space in Downtown Detroit - in exchange for a
percentage of their company (I hear it's over 10%, with very few people
biting). The startups that went through their investment funnels were "heavily
encouraged" to get space there.

My guess is that if he gets Yahoo, he'll open up an office in Detroit, try to
QL-ify it (i.e. make it a sales company that is a fairly close parody of
Glengarry Glen Ross), it will flounder for a few years, and either get sold
again or just die.

I really wish Detroit had a better advocate.

------
shirro
I don't know what is going on here but my bet is it has more to do with rich
people doing tricky stuff with money than a vote of confidence in Yahoo, its
products or potential to make money

If I was saddled with a dinosaur like Yahoo I would split it up and try and
get some cash then rename what was left and I still think you would just be
delaying the inevitable. The Yahoo name has about as much value as Netscape or
Novell. It pretty much says outdated, failed technology company that has been
overtaken by the competition.

------
smegel
This is Buffett, so he must be thinking about this in terms of business, not
tech.

Maybe they have calculated they could break Yahoo up and sell the pieces for
more than they bought as a whole?

Otherwise I'm out of ideas.

~~~
tosseraccount
closet indexing.

------
Communitivity
Idea which I find interesting, but is probably not on target, is BH leveraging
their investments in Yahoo and Apple to have Apple take over Yahoo. The sense
of style which Apple cultivates applied to digital content curation, combined
with a personal digital assistant tweaked for librarian reference desk
responses (Viv-ianne the Librarian).

------
kiproping
Is the death of Yahoo due to poor leadership or did it just die a natural
death like myspace or AOL

~~~
astrodust
There was nothing natural about the death of either of those. Both were
accelerated by an indifference to their platform.

Facebook could have gone the same way but they've largely stayed vigilant
about being relevant to people.

~~~
Coneylake
I kind of want you to give me some examples of both of your points, please.

~~~
astrodust
MySpace completely failed to stay with the times post-acquisition, they kept
focusing on catering to big-name bands rather than the huge base of
individuals. Over time people grew tired of MySpace being indifferent to them
and moved on. Today the same type of crowd has made Snapchat a huge success.

AOL remained fixated on catering to their existing customer base and trying to
grow high-margin dial-up revenues. They squandered their capital even harder
than Yahoo did, as there's not a single AOL branded anything that's a best-of-
breed. Everything about the company is second rate. Consider this: They bought
the internet's darling company, Netscape, and could not make a nickel off of
it or even keep the brand alive in any useful sense despite investing heavily
in a series of increasingly bizarre reboots.

Facebook, by comparison, will not hesitate to incorporate features from other
competing products if they think they're going to drive the platform forward
and has made a number of strategic purchases like Instagram and Oculus to help
cement their relevance.

I'm not even a fan of Facebook, but I admire their tenacity and their
incredible ability to survive in an industry littered with the wreckage of
previously huge social empires.

------
edpichler
I remember to read a lot of times that Warren does not invest in technology,
because it's too risk and he only invest in what he understands. So, now it
seems he learned.

------
gcb0
every time I missclick a New York Times link in my no-JavaScript mobile
browser the site manages to redirect me back to the referrer url I was at.
it's really uncanny. I click a link on HN, and after a page load, I'm back at
hacker news.

except this one link. what should I think of that? why that single link is
different than ever other nytime.com links?

------
arjun1296
What I was interested in Yahoo was the YQL.

After it closed the chatroom services I almost quit using yahoo.

------
some_guy1234
yahoo -> $0. good luck Buffet

------
gopi
So if it happens, does Dan Gilbert slowly move Yahoo workforce to Detroit to
save money?

