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Tragedy + Time

23 February 2016 By Jennifer Saba

If tragedy plus time equals comedy, what does Yahoo plus Time equal? Maybe the same thing, or worse.

News that the $1.5 billion publisher of magazines including People is weighing a bid for the core of the troubled $30 billion internet company evokes memories of the disastrous combination of AOL and Time Warner. Combining print and digital may make more sense now than when the $160 billion merger was hatched in 2000, but the financial contortions certainly don’t.

Citigroup bankers have pitched the idea of using a reverse Morris Trust so that smaller Time Inc can absorb Yahoo’s internet business tax-free, according to Bloomberg. Yahoo’s tortured history of seeking clever ways to break itself up gives further reason for pause on this latest idea.

In December, Yahoo ditched plans to spin out it valuable stake in Chinese online commerce powerhouse Alibaba. After Yahoo devoted years to studying the mechanics, the U.S. government signaled that the company led by Marissa Mayer would have to pay Uncle Sam its cut. That’s why Yahoo is now studying other options.

Time could maybe find a way to make good use of Yahoo’s nearly 1 billion users. In theory, there should be opportunities to sell advertising more tactically and find more readers. It didn’t, however, capitalize on a similar strategy when its former corporate parent Time Warner was absorbed by AOL. Indeed, Time boss Joe Ripp served as vice chairman of AOL after the merger. That deal was supposed to give Time’s publications access to millions of eyeballs. The experiment failed badly.

What’s more, the arcane and rarely enlisted deal structure Time would use has tripped up others. Procter & Gamble, for one, wound up having to abandon its reverse Morris Trust plan to unload Pringles a few years ago for a straight sale to a different buyer. Yahoo can ill afford further delays to sorting itself out, and the maneuver is a time-consuming one. With other deep-pocketed suitors like Comcast and Verizon circling, there may yet be a simple solution for Yahoo.

Of course, Paul Taubman’s PJT Partners, one of three firms advising Yahoo’s board panel, just used a reverse Morris Trust itself to acquire Blackstone’s advisory business. Taubman also worked on AOL Time Warner. Yahoo at least has the benefit of experience.


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