RE: If YLO were to sell the entire online business
RE38, you are making something simple too complicated. An overall comment is that 360 doesn't sell itself. It's not like an eBay that has huge operational leverage just from online signup and online process. 360 growth is tied to that huge sales force Yellow has, and the existing Yellow print customer base. I don't think you can separate the sales and administrative parts of Yellow from the revenue side.
Now let's talk valuation the way a banker would talk about it, and the way private equity will talk about it if they go that route. Credit Suisse thinks 2012 EBITDA is $534M. I know some of you here are optimists and believe it could be $600M. Okay, let's use the optimists number. A firm undergoing a liquidity crisis like Yellow would be lucky to get a valuation at 5.5x EBITDA, so around $3.3B using the optimists numbers. So far that sounds good. The problem is, the EBITDA number the buyer will want to use is not 2012.
A buyer of this business will project forward to the *trough* EBITDA number. And that's the rub, because the business is showing evidence of long term decline. So everyone will now argue about what is the trough EBITDA. Using Credit Suisse's numbers, and calculating extensive share buybacks going forward, I had Yellow showing a trough EBITDA around $395M in 2015. But is that really a trough or just an optimistic guess? I think a buyer won't take the risk that the business sinks even farther. So buyout chances looks slim to me.
But private equity might find a financing deal very attractive. Private equity might come in and offer to pay back the banks and then give an additional $300M to Yellow to use to pay back 2013 MTNs. Work with 2014 to extend that maturity to 2018. Then the sweetener for private equity would be to take all of the common equity (through dilution, warrants, or both). Now private equity puts itself into the deal for $550M of secured debt that sits above MTNs and is easily secured by even pessimistic future assumptions. Further, private equity captures all the upside by owning the equity, and if Yellow gets through maturities and stabilizes the business, that equity makes a fortune for the new owners.
So, bottom line, is I don't see any attractive basis for someone buying the entire business today and making all debt and equity happy. I do see the basis for some vulture coming in and solving Yellows liquidity problems, but at a very high price for common equity. Been there and seen that too many times.