Did the board hire the bankers to shop the company? Or did this occur in response to an inbound expression of interest? The article in The Wall Street Journal didn't say.
If this is in response to an inbound expression of interest, Yelp board's decision makes sense. It's the best for all shareholders as it will ensure the best possible price is attained.
If the board just put the company up for sale, this raises a lot of corporate governance questions.
Yelp has been going through a rough patch. Since September when the stock price hit a high of about $85 a share, Yelp shares hit a 52-week-low on Wednesday of $37.91 -- a drop of about 56%. In the stretch in between, the San Francisco-based company has had three disappointing earnings calls in a row.
Are members of the board putting the company on the block now because they feel that Yelp's future as a stand-alone company is going to be much worse, not to mention the possibility of a much lower price arising? If so, how did things come apart so quickly? And why didn't board members try to sell the company when shares were in the $80-a-share range?
Whatever their reasons, members of the board won't come across well in this decision if they were the ones to put the company on the block.
If it was their choice, many potential buyers are likely to be a little gun shy about paying up for the company -- especially now that the story is out there and has driven up the price another 15% above its 52-week-low. On Thursday, just before the market's close the share price was $47.10.
But for potential buyers, the decision is harder than just deciding to pay a certain price. They need to ask this question: Why do I need to own this company?
Yelp's answer will be along the lines of having the chance of to gain access to the company's users (some 143 million monthly active users at the end of the first quarter) and its brand.
But how much are they really worth?