Yelp's Class B Shares Eliminated; Analyst Sees Potential For Acquisition

Conversion To Single Class

Youssef Squali, an analyst at the firm, noted that the company converted its Class A and Class B shares into a single class of stock on a 1-for-1 basis, with the conversion automatically triggered by B shares falling below 10 percent of the total shares outstanding. The single class shares will now have the same voting powers, preferences and other attributes as the former A shares.

Related Link: End Of Yelp's Dual-Class Share Structure Could Provide Catalyst For Takeout

Diluted Voting Powers

Cantor noted that the rationale for Yelp being an easy acquisition target is that the voting power is now less concentrated. The firm noted that the top two shareholders at Yelp, namely Tybourne Capital and Vanguard, have more voting power than the company's co-founders Max Leschin and Jeremy Stoppelman.

Potential Suitors

While noting that the local ad opportunity remains massive, Cantor said it believes the likely contenders for Yelp include Google's parent Alphabet Inc GOOG GOOGL, Facebook Inc FB, Microsoft Corporation MSFT Priceline Group Inc (NASDAQ: PCLN) and Tripadvisor Inc TRIP.

However, the firm believes a deal with Microsoft may not materialize, given the long history of ill will between the companies. That being said, Cantor believes a potential combination with any of the other companies will add significant value to the acquirer.

Arguments In Favor Of Each Speculated Acquirer

• Benefit for Yelp: Facebook's 3 million advertisers could help expand local advertising accounts.
• Benefit for Facebook: Yelp's extensive reviews when incorporated into Facebook's 30 million businesses with a Facebook page could increase user base.

• Yelp's review service and its Eat24 offering will compliment Priceline's online restaurant booking site.
• Priceline is also cash rich, with $12 billion in cash and equivalents as of the last quarter.

• Yelp's review could be handy for TripAdvisor's over 4 million restaurants worldwide. However, TripAdvisors may have to go for a cash and stock deal, given its limited cash base.

• A Yelp deal could help Microsoft expand into local market leveraging, its Bing search, MSN and other consumer facing assets.

• Google may benefit from incorporation of Yelp's reviews into its search results and cross selling its offerings to the millions of small businesses using Google products. However, the hitch is Yelp's orchestrations against Google's business practices.

Cantor has a Buy rating and a $42 price target on the shares of the company.

At last check, Yelp shares were trading at $39.60, up 0.56 percent.