Warren Buffett appears to be taking his own advice to be "greedy where others are fearful and fearful where others are greedy" as he reportedly pursues Yahoo (YHOO) along with Dan Gilbert, the founder of Quicken Loans.
Until now, Verizon Communications (VZ), which entered the digital content business last year when it purchased AOL for $4.4 billion, had been seen as the favorite in the race for Yahoo. The bidding for Yahoo's core assets is now entering the second round, according to Reuters, which broke the news of Buffett's and Gilbert's interest. Although both declined to comment on the story, the report makes sense given the history of how the Oracle of Omaha operates.
Let's take a closer look at why.
The octogenarian, whose fortune Forbes estimates at $59 billion, is a value investor who prides himself in finding bargain companies or stocks that others have overlooked. Indeed, under CEO Marissa Mayer, Yahoo has fallen out of favor with Wall Street as its core Internet advertising business withered.
Revenue at the Sunnyvale, California-based company has stagnated in recent years, hovering at about $5 billion since 2012. The company's share of the digital ad market is expected to fall to 1.5 percent this year from 2.1 percent last year as revenue is expected to plunge 13.9 percent to $2.83 billion, according to eMarketer. It began soliciting offers for its assets only after being pressured to do so by activist investors.
In recent years, Buffett has gotten over his aversion to the technology industry by making huge bets on IBM (IBM), which surprised many on Wall Street. When he was recently asked about Yahoo, Buffett told CNBC that "something has to change there" without being more specific.
Often, Buffett prefers to leave the management teams of the companies he acquires intact and largely leaves them alone. However, whether Mayer would remain CEO if Buffett and Gilbert acquired Yahoo is hard to say. Activist investors have called for her ouster. Moreover, former Yahoo President Susan Decker is well-respected on Wall Street and also happens to be a member of the board at Buffett's Berkshire Hathaway (BRK.A) conglomerate.
Yahoo's problems are years in the making and can't be solved with a quick fix. Buffett's patience, though, is legendary, even as he occasionally raises some eyebrows with the purchase of newspapers. Berkshire Hathaway now owns about 70 dailies, the bulk of which it acquired in 2012 when it bought 63 titles including the Richmond Times Dispatch from Media General for $142 million in cash. Perhaps Buffett will integrate Yahoo with this business, if his team's bid for Yahoo is successful.
Buffett likes brands, and despite its many challenges, Yahoo is a name that continues to resonate with users. Its sites attract more than 204 million monthly unique visitors, thanks to the popularity of such offerings as Yahoo News and Yahoo Sports. Only Alphabet's Google (GOOG) and Facebook (FB) attract larger audiences, according to comScore. As a holding company, Berkshire Hathaway is chock full of household names ranging from Geico Insurance to Dairy Queen. In 2013, he joined forces with Brazil's 3G Capital to buy HJ Heinz for $23 billion.