Yahoo! refreshes itself
Third Point has recently gained considerably with Dan Loeb’s big bet on Yahoo! Inc. (NASDAQ:YHOO). He owns around 73 million shares in the company, accounting for 26.6% of his total portfolio at the end of 2012. Yahoo! is on the way to reinventing itself under the leadership of the new CEO Marissa Mayer. In February, Yahoo! Inc. (NASDAQ:YHOO)’s front page was changed to a streaming headline format for users to customize the page in a brand new way. Moreover, the company recently rolled out its two new ad units, Stream Ads and Billboard. The Stream Ads are embedded into users’ home page news feed, while the Billboard offers users interactive contents and let users buy movie tickets right from the ad.
What is truly valuable about Yahoo! is its 20% stake in the Chinese e-commerce giant Alibaba. According to DealBook, with 30% operating margin and 15% tax rate, Alibaba would earn around $3.8 billion in 2014. If an earnings multiple of 25 was applied, Alibaba could be worth as much $95 billion on the market. Consequently, Yahoo! Inc. (NASDAQ:YHOO)’s 20% ownership of Alibaba could be valued around $19 billion. Yahoo! is trading at around $25 per share, with a total market cap of $27.7 billion. Excluding the potential value of Yahoo! Inc. (NASDAQ:YHOO)’s stake in Alibaba, Yahoo! alone is worth only around $8.7 billion.
Virgin Media and its merger with Liberty Global
Virgin Media Inc. (NASDAQ:VMED) has kept investors upbeat with its strong first quarter earnings results. The revenue grew by 3.6% to more than £1 billion while the operating income increased by 14.4% to nearly £150 million. Interestingly, its free cash flow experienced a year-over-year growth of as high as 54% to £135 million, thanks to higher operating cash flow, lower capital expenditure and lower interest rate. In the first quarter, the company has grown its cable customer by 8,600 with the improved churn of 1.1%, lower than the churn rate of 1.2% in the first quarter last year. The Cable Average Revenue Per User (ARPU) rose 5.2% to £49.38. What makes me more excited is the great growth in its next generation TV services, TiVo Inc. (NASDAQ:TIVO). Virgin Media Inc. (NASDAQ:VMED) has managed to increase the number of TiVo Inc. (NASDAQ:TIVO)’s customers to 1.5 million, accounting for 40% of its total TV base, while paying TV customers reached 3.3 million, representing 87% of its total TV base.
Several months ago, Virgin Media Inc. (NASDAQ:VMED) agreed to be bought out by Liberty Global Inc. (NASDAQ:LBTYA) for around £15 billion. As Liberty Global is one of the global leading providers of video, broadband Internet and telephony services to 19.5 million customers in Europe and Chile, the two companies seem to have significant synergy to monetize their total customer base of around 25 million. Liberty Global Inc. (NASDAQ:LBTYA) thought that it could have $110 million savings in the operation synergy and $70 million savings in capital expenditure. Thus, the total annual synergy could run up to $180 million. The combined company would have around $7.5 billion in operating cash flow and $1.5 billion in adjusted free cash flow. Liberty Global intended to pay Virgin Media’s shareholders in both cash and stock, including $17.50 per share in cash, 0.2582 Liberty Global Inc. (NASDAQ:LBTYA)’s class A shares and 0.1928 Liberty’s Global’s class C shares. Thus, investors’ Virgin Media Inc. (NASDAQ:VMED) shares would be converted into both cash and Liberty Global’s shares in the near future. Liberty Global is trading at $74.30 per share, with a total market cap of around $19.1 billion. The market values Liberty Global Inc. (NASDAQ:LBTYA) at 9.86 times EV/EBITDA. Virgin Media, at $49.70 per share, is worth around $13.5 billion on the market. Virgin Media is valued a bit cheaper at 8.4 times EV/EBITDA.
My Foolish take
As Virgin Media Inc. (NASDAQ:VMED) is trading at $49.70 per share, Liberty Global Class A is trading at $74.30 per share and Liberty Global Inc. (NASDAQ:LBTYA) Class C is at $69.25 per share, investors could not perform any profitable arbitrage on the merger now as the pricing gap between Virgin Media and the buyout offer has been narrowed down. As for Yahoo! Inc. (NASDAQ:YHOO), investors could consider it an opportunistic play on the company’s reinvention and the Alibaba’s IPO.
The article Dan Loeb’s Top Two Positions in April originally appeared on Fool.com and is written by Anh Hoang.
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