How Do You Shout "Yahoo!" in Chinese?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Help wanted: 40 thieves to help steal Yahoo! (Nasdaq: YHOO  ) for a cut-rate price. Please direct applications to "Alibaba."

Over the weekend, the rumor mill ran full-tilt concerning a planned buyout of Yahoo! by its own subsidiary: Alibaba of China. Asked whether he would use Yahoo!'s weakness to reclaim the 40% Alibaba stake he sold years ago, CEO Jack Ma replied that not only did he want his company back -- he was "very interested" in buying the rest of Yahoo!, too. But if that sounds like a boast, it isn't.

Bloomberg reports today that Alibaba is in discussions with Russia's Digital Sky Technologies and private-equity firm Silver Lake about making a joint bid for Yahoo! Now, I don't know about those latter two ... but for Alibaba in particular, a deal to "eat the parent" makes a lot of sense.

Consider: As Yahoo! floundered in U.S. markets, failing to deliver the promised savings from its partnership with Microsoft (Nasdaq: MSFT  ) , and continuing to lose ground to Google (Nasdaq: GOOG  ) in Internet search, analysts spent a lot of time crunching the numbers -- wondering what Yahoo! might be worth if placed under better management, or broken up and sold to better companies. Experts suggest that Yahoo!'s stake in Alibaba alone is worth $5 per share out of Yahoo!'s current $14 price. The company has another $2 per share in cash. So right there, if Alibaba were to buy Yahoo!, it would basically get half its purchase price back right away.

As for the remainder -- $7 and change -- when you apply it to Yahoo!'s $0.88 in trailing earnings, it works out to a valuation of only 8.5 on a "rump Yahoo!" In other words, the company wouldn't have to grow too much faster than the rate of inflation to justify a purchase.

Foolish final thought
That is to say, so long as it's Alibaba doing the buying. I suppose a Silver Lake or DST -- or even AOL (NYSE: AOL  ) , also often named as a potential acquirer -- could find a way to make this deal work.  But every time I've examined Yahoo!, I've found that the stock just doesn't measure up to the hype. It's growing too slow. It doesn't generate enough cash. It just ... doesn't ... work.

But it might work for Alibaba. For the sake of suffering Yahoo! shareholders, let's hope it does work out.

Can Alibaba seal (steal?) the deal? Will Yahoo! sign on the dotted line? Add it to your Fool Watchlist, and read along as the story unfolds.

Fool contributor Rich Smith owns no shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 268 out of more than 180,000 members. The Motley Fool owns shares of Microsoft, Yahoo!, and Google. Motley Fool newsletter services have recommended buying shares of Yahoo!, Google, and Microsoft and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2011, at 3:44 AM, kariku wrote:

    "How Do You Shout "Yahoo!" in Chinese?"

    'Bao lang shi Sarah Jessica Parker' (barf)

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1564429, ~/Articles/ArticleHandler.aspx, 10/24/2016 11:14:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
AOL.DL $0.00 Down +0.00 +0.00%
AOL CAPS Rating: *
GOOGL $835.74 Up +11.68 +1.42%
Alphabet (A shares… CAPS Rating: *****
MSFT $61.00 Up +1.34 +2.25%
Microsoft CAPS Rating: ****
YHOO $42.59 Up +0.42 +1.00%
Yahoo CAPS Rating: **