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Who might buy Yahoo? The short list could include AT&T, Comcast and Microsoft

USA TODAY USA TODAY 3/12/2015 Mike Snider and Kaja Whitehouse

Yahoo logo© Getty Images Yahoo logo

Yahoo may be selling its core businesses, including email, news and online search. But who might be buying? 

Analysts think shoppers could include phone giant AT&T, search engine companies Google and Microsoft, and even Rupert Murdoch's NewsCorp, which owns news publications like The Wall Street Journal.  

The core of Yahoo is "more than just something that would be of interest to other Internet or tech companies," said Scott Kessler, equity analyst at S&P Capital IQ. "This would appeal to international players, media companies, telecom participants and even some cable firms."

The Web media company's board is meeting this week to discuss its strategy. Until recently, Yahoo had planned to generate returns for unhappy shareholders by spinning off its stake in Chinese Internet giant Alibaba, which is valued at more than $30 billion.

But concerns about the hefty taxes that might accompany the move have prompted investors, led by New York-based investment advising firm Starboard Value, to ask Yahoo to reconsider the spin-off in favor of selling the company's Internet business instead.

The board is mulling its options as growth continues to sag. Yahoo is expected to generate about $4 billion in adjusted earnings in fiscal year 2015, down from $4.4 billion in 2014. Also concerning investors is Yahoo's slow momentum in digital advertising, which is the main way it makes money.

The company commands about 2% of the global digital advertising and search advertising markets, trailing Google and Facebook in both, according to research firm eMarkerter. 

Yahoo (YHOO) shares rose 5.75% to $35.65 Wednesday on talk of a potential sale. But over the past year, Yahoo's stock has fallen 30%. That has left the company in the awkward position of having its Alibaba stake valued at more than $30 billion, or almost its entire $33.6 billion market capitalisation. Take out its stake in Yahoo Japan, a joint venture with Softbank valued at $5 billion, and investors place a negligible value on Yahoo's core assets, including its popular Yahoo Sports franchise.

Last year, Yahoo announced plans to sell its 384 million shares in Alibaba that it acquired in 2005. At the time, Starboard approved the move. 

The new plan could include parceling out Yahoo's core business, which could fetch $6 billion to $8 billion, estimates SunTrust Robinson Humphreys Internet equity analyst Robert Peck. "We think both private equity and strategic buyers would be interested," he said in a note Wednesday. Peck also foresees interest from companies such as Comcast, AT&T, NewsCorp, Disney (owner of ESPN), CBS and even Verizon, which acquired AOL for $4.4 billion in May. 

Alibaba and Softbank have also been bandied about as potential buyers. An acquisition would let them buy back their shares along with Yahoo's businesses. 

"There's always a buyer out there," said BGC Partners technology analyst Colin Gillis. "In its current conglomerate state, it's very difficult to do anything with Yahoo."

Investors like Josh Strauss, portfolio manager of Appleseed Fund, which owns 125,000 Yahoo shares, say they support a sale of the company because, after years of struggle, it appears to be the only avenue left to boost returns for shareholders.

“I’m happy about any sort of capital allocation decision that gets the decision out of Marissa Mayer’s hands,” Strauss said of Yahoo’s beleaguered CEO.

Mayer was brought in to turn the company around in 2012 and proceeded by buying assets like blogging company Tumblr, which cost the company $1.1 billion. In 2013, Mayer made Yahoo the No. 1 acquirer of private tech companies after buying 22 companies — an average of one every 16 days, according to data from data tracker PrivCo.

But the buying spree failed to significantly boost Yahoo’s growth or its stock price. 

Strauss sees Yahoo’s core business fetching $4 billion, based on future earnings, or between $9 and $12 a share. Some Wall Street analysts see it worth considerably less — but still more than zero.

Analyst Brian Wieser of Pivitol Research, for example, said he sees Yahoo’s core business valued at closer to $2 billion, or $3 a share. Analysts at Cowen & Co. said they value Yahoo’s core search and ad business at $3.84 billion.

Private equity firms are also expected to bid on the company, but Strauss said he thinks Yahoo shareholders would be better off with a buyer that has businesses complementary to Yahoo’s, like Google or Microsoft.

“This is a scale business," he said, referring to Yahoo's ability to sell ads against search and news. "Google has scale. Yahoo doesn't.”

Follow Mike Snider and Kaja Whitehouse on Twitter: @MikeSnider & @kajawhitehouse

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