Yahoo shares skyrocketed 7.06% in after-hours trading Tuesday after reports that the ailing company’s board was considering the sale of its core business. People familiar with the matter told the Wall Street Journal that Yahoo’s board will hold a series of meetings between Wednesday and Friday to discuss whether to move ahead with the proposed spin-off of its $32 billion stake in Alibaba and sale of its core Internet business.
It will eliminate the uncertainty around Yahoo’s stake in Alibaba
Yahoo CEO Marissa Mayer’s plan has failed to turn around the company’s core businesses. If the board decides to sell the core business, the online media company will have to put in motion a deal to sell its Alibaba stake and 35% stake in Yahoo! Japan. WSJ notes that it presents an opportunity for Alibaba to buy back Yahoo’s stake in the Hangzhou-based company. Even better, Jack Ma could team up with a US media house or private equity firm to acquire Yahoo.
For Alibaba, it will be like buying its own shares at a discount. It will also eliminate the uncertainty around Yahoo’s stake in the Chinese e-commerce behemoth. There’s plenty of reasons to believe that the Chinese company may buy Yahoo’s stake in Alibaba as well as the US company’s core assets. The online retail giant has net cash of $2.3 billion, but low interest rates in the US make it a good time to raise some debt.
Only if the transaction is ‘financially attractive’
Jack Ma has been investing in a lot of media companies, both digital and print. Though some claim Yahoo’s core business is “worthless,” it still attracts over a billion Internet users every month. Buying Yahoo’s Internet properties will instantly put Alibaba in the big league of media companies. The Sunnyvale-based company owns 59 different local sites providing news, data, and stock quotes.
Alibaba could place ads, promotions, and special offers on Yahoo’s websites to drive traffic to its e-commerce platforms like Taobao and Tmall. However, Sanford C. Bernstein & Co analyst Carlos Kirjner believes the Chinese company has no interest in Yahoo’s core business, but may consider buying “all or part of Yahoo’s stake in Alibaba” if the transaction is financially attractive.