Yahoo at $8 Billion Without Alibaba May Lure Buyers: Real M&A
2015-01-21 23:12:33.711 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- Yahoo! Inc. will be a fraction of its size
should the company spin off its remaining stake in Alibaba Group
Holding Ltd., making it a takeover candidate for SoftBank Corp.
or private-equity firms.
Marissa Mayer, chief executive of the $46 billion company,
is expected to give an update next week about whether Yahoo will
sell its Alibaba shares and how it will avoid paying taxes on
the move. With the Chinese e-commerce company accounting for
most of Yahoo’s value, shareholders would be left holding a U.S.
Internet advertising and search business worth about $5 billion
to $8 billion, according to analysts’ estimates compiled by
Bloomberg. Yahoo will also still have a roughly $8 billion stake
in Yahoo Japan Corp.
SoftBank could buy Yahoo to increase its own Yahoo Japan
stake, though its unclear how much the Japanese wireless carrier
would be willing to pay for a U.S. business that’s under
pressure. A private-equity suitor could be lured by the cash
Yahoo’s operations generate. Or Alibaba could always just take
over Yahoo and retire the Alibaba stock that Yahoo owns, gaining
some exposure to the American technology market.
“Marissa Mayer has to make a very big decision, and it
will either involve splitting the company up or doing nothing,”
Neil Doshi, a San Francisco-based analyst for CRT Capital, said
in a phone interview. If it casts off the Alibaba stake, “the
acquisition size becomes much more manageable, and we think
Yahoo could become a much more compelling target.”
Alibaba Value
Mayer said in October that she will report back to
shareholders by the next earnings release on Jan. 27 with an
update on its plans for the rest of its Alibaba holding.
“Many have pointed out the value accretion that would
occur if this final tranche were to be taxed upon sale at a
lower rate than the previous sales,” Mayer said at the time.
“We are acutely of aware of this. We have the best tax experts
in the country, working intensively on structures to maximize
the value to our shareholders of our remaining stake in
Alibaba.”
Yahoo owns about 384 million shares of Alibaba, which it
can’t sell until September, the one-year anniversary of
Alibaba’s U.S. initial public offering. The stake is worth about
$40 billion, while its Yahoo Japan stake is valued at about $8
billion. That means investors buying Yahoo’s stock today get to
own the core U.S. business for free and aren’t giving the
company credit for its roughly $7 billion of net cash.
“The U.S. business is still cash generative -- it’s not
worth nothing,” Brett Harriss, an analyst for Gabelli & Co. in
Rye, New York, said in a phone interview.
Stake Options
An approach favored by some shareholders would be a tax-
free spinoff of the Alibaba shares into a separate company, with
the value going to Yahoo investors and leaving Mayer with a much
smaller business to run. Another tax-free alternative known as a
cash-rich split would require Alibaba or another affiliated
company to give Yahoo cash and an active business in exchange
for its Alibaba shares.
Without the Asian assets, Yahoo’s core business alone may
be valued at six times earnings before interest, taxes,
depreciation and amortization, or about $8 billion, according to
Gabelli’s Harriss. CRT Capital’s Doshi pegs it at $5 billion to
$6 billion.
In either case, it would be much easier for a buyer to
digest. And Asian companies are scouting out American technology
and media targets.
SoftBank, Tencent
Tokyo-based SoftBank, which controls wireless carrier
Sprint Corp., has been looking for more U.S. investments.
SoftBank and Yahoo also are the biggest shareholders in Yahoo
Japan.
Similarly, Tencent Holdings Ltd., China’s second-largest
Internet company, could be a logical suitor for Yahoo as it
tries to expand in the U.S., according to Doshi at CRT Capital.
With Yahoo gaining mobile-advertising market share, it
could even be a compelling target for Microsoft Corp. as the
$379 billion software provider falls behind in mobile Internet,
Doshi said.
Starboard Value LP, the activist investor putting pressure
on Yahoo’s management and board, says Yahoo should explore a
merger with AOL Inc., estimating as much as $1 billion of cost
savings from such a transaction.
Awaiting Word
Of course, Alibaba could just decide that it wants Yahoo.
Next week’s earnings call should give investors better
insight into Mayer’s plans, though many analysts say she’s
unlikely to want to manage a smaller company or sell it.
“It’s certainly going to be a call that’s greeted with
interest and a call where the core business is going to be an
afterthought,” Colin Gillis, a New York-based analyst for BGC
Partners, said in a phone interview. Before any potential
acquisition, “you’ve got to get through breaking the entities
apart. That’s step one.”
Figuring out a tax-efficient way to divest the Asian stakes
could take more time, said Scott Kessler, a New York-based
analyst for S&P Capital IQ. So he’s not expecting a big breakup
announcement next week.
“My reading is that they’re going to provide an update,
not some definitive decision,” Kessler said in a phone
interview. “These issues may be a lot more nuanced and
complicated than people appreciate.”
For Related News and Information:
Yahoo’s Mayer Faces Choice Between Investors, Herself on Alibaba
Starboard Boosts Pressure on Yahoo to Unlock Alibaba Value
Yahoo Set to Pass Twitter in U.S. Mobile Ads After Mayer Revamp
Bloomberg Intelligence Primer on Yahoo
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger Calculator: MRGC <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-01-21 23:12:33.711 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- Yahoo! Inc. will be a fraction of its size
should the company spin off its remaining stake in Alibaba Group
Holding Ltd., making it a takeover candidate for SoftBank Corp.
or private-equity firms.
Marissa Mayer, chief executive of the $46 billion company,
is expected to give an update next week about whether Yahoo will
sell its Alibaba shares and how it will avoid paying taxes on
the move. With the Chinese e-commerce company accounting for
most of Yahoo’s value, shareholders would be left holding a U.S.
Internet advertising and search business worth about $5 billion
to $8 billion, according to analysts’ estimates compiled by
Bloomberg. Yahoo will also still have a roughly $8 billion stake
in Yahoo Japan Corp.
SoftBank could buy Yahoo to increase its own Yahoo Japan
stake, though its unclear how much the Japanese wireless carrier
would be willing to pay for a U.S. business that’s under
pressure. A private-equity suitor could be lured by the cash
Yahoo’s operations generate. Or Alibaba could always just take
over Yahoo and retire the Alibaba stock that Yahoo owns, gaining
some exposure to the American technology market.
“Marissa Mayer has to make a very big decision, and it
will either involve splitting the company up or doing nothing,”
Neil Doshi, a San Francisco-based analyst for CRT Capital, said
in a phone interview. If it casts off the Alibaba stake, “the
acquisition size becomes much more manageable, and we think
Yahoo could become a much more compelling target.”
Alibaba Value
Mayer said in October that she will report back to
shareholders by the next earnings release on Jan. 27 with an
update on its plans for the rest of its Alibaba holding.
“Many have pointed out the value accretion that would
occur if this final tranche were to be taxed upon sale at a
lower rate than the previous sales,” Mayer said at the time.
“We are acutely of aware of this. We have the best tax experts
in the country, working intensively on structures to maximize
the value to our shareholders of our remaining stake in
Alibaba.”
Yahoo owns about 384 million shares of Alibaba, which it
can’t sell until September, the one-year anniversary of
Alibaba’s U.S. initial public offering. The stake is worth about
$40 billion, while its Yahoo Japan stake is valued at about $8
billion. That means investors buying Yahoo’s stock today get to
own the core U.S. business for free and aren’t giving the
company credit for its roughly $7 billion of net cash.
“The U.S. business is still cash generative -- it’s not
worth nothing,” Brett Harriss, an analyst for Gabelli & Co. in
Rye, New York, said in a phone interview.
Stake Options
An approach favored by some shareholders would be a tax-
free spinoff of the Alibaba shares into a separate company, with
the value going to Yahoo investors and leaving Mayer with a much
smaller business to run. Another tax-free alternative known as a
cash-rich split would require Alibaba or another affiliated
company to give Yahoo cash and an active business in exchange
for its Alibaba shares.
Without the Asian assets, Yahoo’s core business alone may
be valued at six times earnings before interest, taxes,
depreciation and amortization, or about $8 billion, according to
Gabelli’s Harriss. CRT Capital’s Doshi pegs it at $5 billion to
$6 billion.
In either case, it would be much easier for a buyer to
digest. And Asian companies are scouting out American technology
and media targets.
SoftBank, Tencent
Tokyo-based SoftBank, which controls wireless carrier
Sprint Corp., has been looking for more U.S. investments.
SoftBank and Yahoo also are the biggest shareholders in Yahoo
Japan.
Similarly, Tencent Holdings Ltd., China’s second-largest
Internet company, could be a logical suitor for Yahoo as it
tries to expand in the U.S., according to Doshi at CRT Capital.
With Yahoo gaining mobile-advertising market share, it
could even be a compelling target for Microsoft Corp. as the
$379 billion software provider falls behind in mobile Internet,
Doshi said.
Starboard Value LP, the activist investor putting pressure
on Yahoo’s management and board, says Yahoo should explore a
merger with AOL Inc., estimating as much as $1 billion of cost
savings from such a transaction.
Awaiting Word
Of course, Alibaba could just decide that it wants Yahoo.
Next week’s earnings call should give investors better
insight into Mayer’s plans, though many analysts say she’s
unlikely to want to manage a smaller company or sell it.
“It’s certainly going to be a call that’s greeted with
interest and a call where the core business is going to be an
afterthought,” Colin Gillis, a New York-based analyst for BGC
Partners, said in a phone interview. Before any potential
acquisition, “you’ve got to get through breaking the entities
apart. That’s step one.”
Figuring out a tax-efficient way to divest the Asian stakes
could take more time, said Scott Kessler, a New York-based
analyst for S&P Capital IQ. So he’s not expecting a big breakup
announcement next week.
“My reading is that they’re going to provide an update,
not some definitive decision,” Kessler said in a phone
interview. “These issues may be a lot more nuanced and
complicated than people appreciate.”
For Related News and Information:
Yahoo’s Mayer Faces Choice Between Investors, Herself on Alibaba
Starboard Boosts Pressure on Yahoo to Unlock Alibaba Value
Yahoo Set to Pass Twitter in U.S. Mobile Ads After Mayer Revamp
Bloomberg Intelligence Primer on Yahoo
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger Calculator: MRGC <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman