- Yahoo already has 7B in after-tax cash from the sale of a 7% share in Alibaba.
- Yahoo could not just sell more BABA shares, incur a 35% tax just to complete some large acquisition while they already have 10B in cash which is more than the value of their core business.
- They still own 35% of Yahoo Japan and that share is worth another 7B in itself. Yahoo still has tons of assets.
What's interesting is that the market values Yahoo at around 50B at the moment. The BABA spinoff is worth 40B. They have 10B in cash. Their share of Yahoo Japan is 7B. Even before accounting for Yahoo's core business, they should be worth 57B. We're probably looking at an adjustment in their market cap if no legal obstacles to the spinoff are met.
> What's interesting is that the market values Yahoo at around 50B at the moment. The BABA spinoff is worth 40B. They have 10B in cash. Their share of Yahoo Japan is 7B. Even before accounting for Yahoo's core business, they should be worth 57B.
Which suggests (assuming all that is accurate) that the market values Yahoo's "core business" as a $7 billion liability.
More like the market is expecting them to lose the $10 billion in the bank (spending on money losing core businesses) rather than return money to shareholders.
I think that the core business has an EBITDA of $1,362 million according to their 2014 results. That may be declining but it is still very much a profitable business.
Even if you're careful to short the same notional value, that's not a pairs trade that I would put on. It would open me to upside risk in BABA if YHOO does not perform as well. Correlations change all the time.
I don't think the Alibaba spinoff would be worth $40 billion because it comes with a sizeable tax bill which shareholders will have to pay when they sell their shares.
Matt Levine at Bloomberg (who is awesome) points out that Alibaba will simply buy the spinoff for stock, replacing spin-off shares with plain old Alibaba shares.
Would they avoid the tax hit if its a stock swap? i.e. all stock deal for the acquisition? or buy them in cash in 2016, then the hit is capital gains (lower tax rate)? I'm asking/speculating
- Yahoo already has 7B in after-tax cash from the sale of a 7% share in Alibaba.
- Yahoo could not just sell more BABA shares, incur a 35% tax just to complete some large acquisition while they already have 10B in cash which is more than the value of their core business.
- They still own 35% of Yahoo Japan and that share is worth another 7B in itself. Yahoo still has tons of assets.
What's interesting is that the market values Yahoo at around 50B at the moment. The BABA spinoff is worth 40B. They have 10B in cash. Their share of Yahoo Japan is 7B. Even before accounting for Yahoo's core business, they should be worth 57B. We're probably looking at an adjustment in their market cap if no legal obstacles to the spinoff are met.