If Alibaba Group Holding Ltd Bought Yahoo! Inc…

Yahoo shares continued to recover today after concerns were raised earlier this week when an IRS official announced that they could make changes to the tax rules on spinoffs. Management for the search giant quickly looked to alleviate those fears by stating that they had already submitted a letter regarding to the spinoff to the IRS, which meant that Yahoo should still be able to receive tax benefits from spinning off its stake in Alibaba.

If Alibaba Group Holding Ltd Bought Yahoo! Inc…

What Alibaba could gain if it buys Yahoo

But now here’s an interesting consideration from Brett Harriss of Barron’s. What if Alibaba bought all of Yahoo? It’s certainly got the resources to do so.

Harriss highlights two benefits Alibaba could enjoy if it purchased all of Yahoo.  Of course the most obvious one would be that Yahoo would no longer own 17% of Alibaba. The second benefit relates to the company’s stake in Yahoo! Japan, which is arguably the other most valuable part of Yahoo behind its stake in Alibaba. If Alibaba bought Yahoo, it would get a 35% stake in Yahoo! Japan.

How Yahoo! Japan would benefit Alibaba

According to Harriss, there are two main benefits Alibaba could derive from owning such a sizeable stake in Yahoo! Japan. First, the Chinese online retailer would have a foot in the Japanese market, which it could then build upon to expand there. Second, Alibaba would be able to use that stake “as a bargaining chip for future negotiations with SoftBank,” he suggested.

Although the fears about Yahoo losing out on a tax benefit from the spinoff of its $34 billion Alibaba stake appear to be alleviated, Harriss suggests that any change in tax rules could push the timing of the spin into next year. Ultimately though, since Yahoo already submitted a letter to the IRS about the spin, it’s highly unlikely that the company will miss out on the tax benefits entirely.