Goldman Sachs’ Heath P. Terry maintained a Neutral rating on Yahoo! Inc. YHOO, while raising the price target from $33 to $37.
Core Spin Off
“Yahoo’s current core plan is to spin the business, together with Yahoo Japan into an independent company, with the RemainCo consisting of the Alibaba Group Holding Ltd BABA stake,” Terry reported.
Management believes that this would be a complex transaction and would need approvals from shareholders, third parties and regulators. The company expects the entire process to take 9-12 months or more.
Terry mentioned that SOTP analysis suggested that the spin could lead to 3 percent upside to the share price.
Other Options
The analyst pointed out “Yahoo sites rank in the top three in the US in terms of monthly unique visitors,” while the company’s ad tech, such as the native ad platform, Gemini, and the programmatic video platform, BrightRoll, could attract strategic acquirers.
“Given its reach and technology, we see large telcos and media companies as the most likely potential acquirers,” the Goldman Sachs report said.
In a leveraged buyout scenario, Terry believes that that could be potential for 12 percent IRR at an entry multiple of 8.25X the 2016 EV/EBITDA estimates.
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