Why Buffett may be interested in backing a Yahoo bid

May 18, 2016 15:51
With Warren Buffett saying that he is willing to back a consortium's bid for Yahoo, the battle for the struggling Internet giant has taken an interesting turn. Photos: Reuters, Yahoo

Warren Buffett's Berkshire Hathaway disclosed recently that it invested US$1 billion in Apple shares. Meanwhile, there have been reports that the legendary investor is backing a consortium that is seeking to bid for Yahoo's Internet assets.

The reports have drawn a lot of interest as Buffett has avoided technology investments in the past.

It turns out that the move on Apple was taken by two young Berkshire fund managers -- Todd Combs and Ted Weschler. Buffett told the Wall Street Journal that his deputies made the decisions on their own.

Berkshire's latest quarterly report shows that it accumulated 9.81 million Apple shares worth US$1.07 billion, at US$109 per share on average, in the first quarter of this year.

Apple has seen its shares slump to US$90 after the company reported worse-than-expected quarterly earnings in mid-April.

The stock's slide will however not worry Buffett as value investors like him take a long-term perspective.

Buffett brought the two managers on board in 2011, and gave them each US$10 billion to make investments on their own. Both of them are potential successors if he retires, the billionaire has suggested.

Buffett confirmed in an interview with CNBC that Berkshire has offered to be a potential finance partner for Quicken Loans founder Dan Gilbert for a possible purchase of Yahoo's core internet business.

Yahoo's share price has been struggling for years, and the company's management said in February that it would offload its Internet business including search platform.

Yahoo remains the fifth largest Web property in the world despite suffering intensifying competition from its rivals.

According to the Wall Street Journal, several parties, including TPG, Bain Capital and Vista Equity Partners, were interested in bidding for Yahoo's assets. Due to the strong interest, the valuation of the assets has surged from US$3 billion to US$8 billion.

At a Berkshire annual meeting last month, Buffett made a mention of Yahoo, saying the Internet firm had some good assets but saw its fortunes deteriorate in recent years due to a series of "clearly failed" acquisitions.

He said the company has to make some changes to bring its business back on track.

Interestingly, Berkshire chose Yahoo to host the first-ever live stream of the former's annual shareholders meeting, rather than other more popular platforms like Google or YouTube.

In 2010, former Yahoo president and chief financial officer Susan Decker joined Berkshire's board as director.

Decker said in an interview early this month that Yahoo has lost its core value for users as the company has become mediocre in many properties.

Yahoo needs to "create a distinction in consumers" minds as to why they should still love the platform, she said.

It would appear that Decker has played a big role in Berkshire's purported move to support a consortium's bid for Yahoo, and that there is a good plan to turn the company around.

This article appeared in the Hong Kong Economic Journal on May 18.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist