A hedge fund with a 1.5 percent stake in Yahoo Wednesday went public with a call to sell the Internet company’s search business to Microsoft for an estimated $15 billion, or $9 billion after tax.
The press release chides “certain members of the board” for rejecting previous offers from Microsoft as Yahoo’s stock price has fallen. Under the proposed deal, Microsoft would become the search provider for all Yahoo properties and search affiliates while Yahoo would receive 80 percent of the revenue generated by search traffic to its sites.
The open letter, which declares that “there are no other viable strategic options,” comes at a time of vulnerability for Yahoo, whose proposed search alliance with Google was blocked by anti-trust regulators and whose chief executive, Jerry Yang, is stepping down once a replacement is found.
Shares of Yahoo tacked on $.66, or 5.4 percent, to $12.84 in afternoon trading.
In February, Microsoft offered $31 per share to buy all of Yahoo, but four months later walked away from rocky negotiations and disclaimed further interest. In recent weeks, however, Microsoft CEO Steve Ballmer has rekindled speculation by signaling interest in a search-only deal.
Overall, Ivory said that by its calculations a search deal with Microsoft would deliver to shareholders value of $24-29 per share.
Part of that value would be realized by elimination of about $800 million in overlapping search operating costs borne by Microsoft and Yahoo, which remain far behind industry leader Google, the letter said.
“The combined search platform and marketplace would have a much greater ‘network’ effect, resulting in 20 percent higher monetization rates,” the Ivory letter added.
Ivory figures Yahoo would lose yearly search revenue of about $1.7 billion from its own sites and $450 million from affiliates (net of traffic acquisition costs). That would be offset by more than $1.6 billion in traffic acquisition payments from Microsoft.
As business has sagged, Sunnyvale, California-based Yahoo kicked off a round of about 1,500 layoffs—about 10 percent of its workforce--Wednesday, according to The Wall Street Journal.