Mail’s interest in Yahoo isn’t so odd – it demonstrates huge Stateside ambition

25th April 2016

As M&A rumours go, it was a pretty bizarre one. I’m talking, of course, about the past week’s rumours that the Daily Mail was going to buy Yahoo (well, sort of, but we’ll come to that in minute).

We’ve written about the ailing (cruel, but it has to be said) 1990s tech giant many times before here in The Drum. For me and my Green Square partners Barry and Tony, Yahoo is an object of fascination.

No matter who comes in to run it, no matter how many businesses it buys (Flickr, Tumblr, Polyvore or any of the other 90 or so business it has spent billions on acquiring over the past decade), nothing much changes.

The promised ‘new dawn’ never rises, and the business remains firmly in the doldrums. Huge, yes. Profitable, yes. But never sexy, not really dynamic and the perpetual dowdy bridesmaid to younger sexpots like Google, Facebook and Amazon, or even shiny Apple.

The perpetual question that nobody – including Yahoo and its formidably energetic CEO, Marissa Meyer – seems to be able to answer is, ‘what is Yahoo for?’

Personally I think that it’s a question that, more than halfway through the second decade of the 21st century, cannot be answered. Yahoo is 20-plus years old. In internet terms, that’s old. Too old. You can see why people say, ‘put it out of its misery’.

But the truth is, Yahoo has some good properties nestling beneath its creaking carapace. We’ve said it before – as have many other commentators – but the parts of Yahoo are worth considerably more than the sum.

Spinning off various parts, or even splitting it up, would make perfect sense and bring some cheer to long-suffering Yahoo investors.

Indeed, there has been no shortage of suitors for the tech giant – some 40 players that have expressed interest including Verizon Communications Inc (which already owns another 90s legacy company, AOL), IAC/InterActiveCorp., CBS Corp, Time Inc. and private equity firms KKR & Co. and TPG.

But none of them have been more leftfield than the Mail group.

First of all, the Mail has spent a good deal of the past 20 years blaming all manner of society’s ills on the internet. The idea of getting into bed with a company which has helped bring pictures of naked ladies to teenage bedrooms everywhere is an odd one. Daily Mail editor Paul Dacre must be fuming at his boss’s circling of Ms Meyer’s company.

But levity aside, what does the Mail want, and what will it get? First of all, it’s highly unlikely it wants the whole of Yahoo. The Mail stable of papers is still – unlike many of its rivals – profitable and Mail Online is the most-read newspaper website in the world (250 million unique users a month and counting).

Its (parent company DM&GT’s) market cap is about £2.4bn, whereas the allegedly ‘ailing’ Yahoo has a value of about $36.7bn (£25.8bn). Even with private equity help, it’s difficult to seeing even an ambitious media player like DM&GT finding that kind of funding.

And while much of the world – including the UK – regards Yahoo as a marginal or ‘legacy’ business, it is still massive in the US. According to researcher ComScore, it’s the third most-visited site Stateside behind Google and Facebook.

Here, we are used to getting our online news and sport from the likes of the BBC; in America, Yahoo’s news and sports sites are read by about one in four people at least once a week. That’s a lot of eyeballs. Its personal finance coverage is apparently read by more US citizens than anyone else’s.

So, while Yahoo gets the users, it doesn’t get the income – just 1.5 per cent of marketers’ mobile online spend, according to a study by eMarketer. Google gets 35 per cent and Facebook 19 per cent.

Hence the desire by stockholders to break it up. Part of its problem is that it doesn’t know its users in an area where knowledge is everything. Amazon, Facebook and Google know who their users are, Yahoo is a bit vague about them.

The thinking goes that if Yahoo were split up into smaller units, advertising could be more targeted and thus more appealing to marketers with budgets to blow.

And in many ways, DM&GT is a very good fit with certain parts of Yahoo. The latter’s personal finance sites would slot in very nicely with the Mail’s, as well as properties such as Zoopla and Euromoney.

With a mixture of news, gossip, pictures, sport and opinion, the US version of Mail Online attracted 66.7 million unique visitors in February according to ComScore. Acquiring Yahoo news and sport could boost those numbers considerably: Yahoo and its partner ABC News attract about 130 million unique users a month. Combining these two would make a compelling prospect for media buyers.

They’re a good match too. Yahoo’s US users are mostly millennials (aged about 20 to 35), and Mail Online in the US trends much younger than its print counterpart. The Mail’s management could use its skill in attracting readers (it’s a truism of the UK press scene that no papers know their readers better than the Mail and Mail on Sunday) to the Yahoo brand. And finally, both audiences are interested in celeb gossip. The infamous ‘sidebar of shame’ would sit as nicely on a Yahoo site as it does on Mail Online.

There might be other parts of Yahoo that would be of interest. Despite the fame (or infamy, depending on your point of view) of its newspapers, most of DM&GT’s income derives from B2B and information activities such as DMG Events, Risk Management Solutions and DMG Information. DMGT might be able to use data from Yahoo for its B2B and events management operations.

Or it could spin off the profitable information side altogether, and fold Yahoo and the Mail/Metro sites and titles together, giving DMGT control of two different companies: one focussed on ‘consumer-facing’ news and features; the other on business information and events.

But it is an open secret that DM&GT has been talking to private equity houses about help with a possible deal – and, as I said earlier, the company would need PE help to buy even a part of Yahoo as it is dwarfed by the internet company and is about £700m in debt and unlikely to want to take on any more.

As I write, there are two scenarios. One, the less likely, deal would see a PE consortium buy the whole of Yahoo, then combine its media properties with the Mail’s online operations in a separate company in which DM&GT would have a large stake.

The other would see DM&GT take on Yahoo’s media properties, such as Yahoo News and Yahoo Sport, while PE partners bought its other operations, including its advertising technology, email and search businesses.

This latter deal is the most likely. Because if it can pull it off, DM&GT will all of a sudden find itself propelled to the very forefront of US news media. Mail Online is known to be a globally ambitious, forward-thinking entity (and thus rather different from its newsprint sibling) and that is why its interest – while at first glance incongruous – should be taken seriously, and as an indication of the scale of its ambition.

If DM&GT fails, it won’t be through lack of will – it will be because equally ambitious, but better-financed rivals such as Verizon, CBS, or Interactive (owner of the online dating giant Tinder) will outbid it.

The other question is what would happen to Yahoo’s other properties – Tumblr and Flickr, for example, or the stake in AliBaba (which is actually the most valuable thing the company possesses – that, for the moment, doesn’t seem to be up for sale).

But that is a question for another day.