Alibaba Group Holding Ltd Stake Puzzles Yahoo CEO Mayer

3
1
Alibaba
By Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Yahoo! Inc. (NASDAQ:YHOO) unloaded 140 million shares of Alibaba Group Holding Ltd (NYSE:BABA) when the Chinese company went public in September. The U.S. technology company received about $9.3 billion in proceeds. However, Yahoo still owns 16% stake in Alibaba, which is currently worth about $44 billion.

Should Yahoo spin off Alibaba stake in a separate company?

This huge stake has puzzled Yahoo CEO Marissa Mayer. She would have to choose between making shareholders happy or running a larger company, reports Bloomberg. If she chooses to sell off that stake, Yahoo will face a potential tax bill of $15 billion. The company’s management has been working with some of the “best tax experts” for more than a year to sell its stake in Alibaba, while avoiding or minimizing the tax bill.

An option that Yahoo shareholders favor is spinning off the Alibaba stake in a separate entity in a tax-free transaction. The value of the new entity would go to Yahoo shareholders. That’s the best approach for shareholders, says Eric Jackson of Ironfire Capital. But this approach has a big downside for Marissa Mayer. If the Alibaba stake is spun off into a separate entity, she would end up heading a company that is just one-fourth of current Yahoo.

Top value fund managers are ready for the small cap bear market to be done

InvestorsDuring the bull market, small caps haven't been performing well, but some believe that could be about to change. Breach Inlet Founder and Portfolio Manager Chris Colvin and Gradient Investments President Michael Binger both expect small caps to take off. Q1 2020 hedge fund letters, conferences and more However, not everyone is convinced. BTIG strategist Read More

Marissa Mayer is expected reveal her divestment plans later this week. Bloomberg says Yahoo may still come up with a surprise solution to avoid the tax bill. Under the company’s agreement with Alibaba, it can’t sell its stake in the Chinese e-commerce giant until September 2015. Sources told Bloomberg that the Sunnyvale-based company has hired Goldman Sachs and JPMorgan to figure out a tax-efficient method to sell its Alibaba stake.

Yahoo could go Warren Buffett way

In fact, there is a tax-free alternative that would leave Marissa Mayer with a bigger company. It’s called cash-rich splitoff, the same strategy that recently Warren Buffett used to buy Duracell from Procter & Gamble. Buffett owned $4.7 billion stake in Procter & Gamble. He used cash-rich splitoff to turn over his huge stake in the consumer goods company in exchange for Duracell, while infusing $1.7 billion cash.

Yahoo shares fell 1.11% to $51.17 at 12:05 PM EST on Monday.