In 2011, before Dan Loeb announced Third Point’s stake, it was reported that Silver Lake and Marc Andreessen wanted to buy Yahoo for $16.50/share or $18 billion1 § Many commentators on CNBC at the time said this price sounded like a “good deal” for Yahoo shareholders because Yahoo was too hard to turn around § If Silver Lake/Andreessen had been successful, they would have received not only Yahoo’s Core Business, its $9 billion stake in Yahoo Japan, but also its then 44% stake in Alibaba which today would be worth $89 billion § When you hear people say that “Yahoo should be chopped up” by private equity because Yahoo is “hopeless”, what they’re really saying is that Yahoo’s public market shareholders should do a wealth transfer to some private equity LPs or public holders of companies like Verizon
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Yahoo – Starboard’s “Sell At the Lows” Plan Isn’t Attractive
Starboard – a shareholder – on Nov. 19/15 argued that YHOO not spin off the Alibaba stake but instead sell the core business § We don’t think their “sell at the lows” argument will be compelling to either the Yahoo board or other Yahoo shareholders § YHOO’s stock didn’t increase at all the day after the letter was revealed; we believe that’s because Yahoo investors don’t believe Starboard’s plan will work and/or won’t be adopted § We think Starboard’s credibility has been substantially weakened in taking this “sell at the lows” approach § We disagree with their projected cost savings estimates of $370 – $500M/year; we think at least $2B in annual savings are possible from headcount reductions and cost cuts § While we agree with their estimates about the deterioration of the Core, we can’t understand why they would then conclude that now is the time to sell off the core business at its lowest possible value § Starboard’s plan – at best – will get Yahoo shareholders an extra $3-4/share for their investment (Selling the core at $6B) § Our plan will deliver at least an additional $30/share of value to all Yahoo shareholders § The right turnaround plan and the right partner to help unlock the full value of YHOO embedded in its current assets § A turnaround for public shareholders, not a fire sale for a return and strategies wanting to buy a great asset on the cheap
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§ Yahoo’s board announced on December 9th, 2015 that it won’t continue with the planned spinoff of its Alibaba stake, as the potential tax bill for proceeding was too great a risk for the directors to assume that responsibility. § Instead, YHOO’s board said it would being working on a plan to spin off the core business and the Yahoo Japan stake § This would leave just the Alibaba stake as part of the YHOO stock; the core Yahoo business and Yahoo Japan stake would trade under another ticker § Some shareholders think YHOO’s board is now simply going to sell the core The Problem With Simply Selling Or Spinning The Core1: Yahoo Shareholders Want $30/Share More – Not $3/Share And Full Tax On BABA § There is a risk – not a certainty – that if YHOO Core is sold or spun, the stake in Alibaba would become taxable on the gains from the time of Yahoo’s investment in 2005 to today under the Investment Company Act of 19402 § Therefore, Yahoo shareholders would owe a tax bill on the gains of the Core as well as the BABA stake § Why not instead: • Start the real turnaround of the Core with new management and a new board to create $20 – 30/share in value for current shareholders? • Study the tax issues in more detail with the help of a partner like a Liberty?
Full PDF below
H/T WSJ
