
Yahoo to Spin Off Its Stake in Alibaba - aaronbrethorst
http://www.nytimes.com/2015/01/28/technology/yahoo-earnings-alibaba-spinoff.html
======
ucha
This is the only outcome that made sense.

\- 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.

~~~
dragonwriter
> 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.

~~~
JOnAgain
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.

~~~
spullara
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.

[http://finance.yahoo.com/news/yahoo-reports-fourth-
quarter-f...](http://finance.yahoo.com/news/yahoo-reports-fourth-quarter-
full-210500209.html)

------
manishsharan
Seems like Yahoo is the most successful VC in Silicon Valley!

------
gojomo
This is a much more detailed explanation of why the spin-out saves on taxes:

[http://www.bloombergview.com/articles/2015-01-28/yahoo-
would...](http://www.bloombergview.com/articles/2015-01-28/yahoo-would-rather-
not-pay-taxes-on-its-alibaba-shares)

It also suggests that at some point, after some time has gone by, Alibaba will
find it a no-brainer to buy the spin-out.

------
rocky1138
Aside from the Alibaba news, which smarter and more capable people here are
commenting on, I found this nugget to be really interesting:

"The company’s net income was $166 million, or 17 cents a share, in the fourth
quarter, compared with $348 million, or 33 cents a share, in the same quarter
a year ago."

How long is the current trend sustainable? Year-over-year losing half their
net income! At this point it seems like a simple matter of time.

~~~
downandout
It is bad, and yet, it isn't. I would give just about anything to own a
business throwing off net profits of ~$650 million per year, or half that, or
even 10% of that. Many people feel the same way you do - the market currently
assigns a negative value to this $650 million annual income - but I think it's
not a terrible thing to have coming in.

------
skuhn
I can see how this benefits Yahoo's shareholders, and they are after all a
publicly traded company.

It still seems like an exceptionally poor way for Yahoo itself to reap the
rewards of this long term investment, particularly when it needs to inject
some life into its business by spending on talent acquisition or new ventures.

Here's how I think the Alibaba investment breaks down for Yahoo:

Yahoo paid $1bn to Alibaba in 2005. They sold a portion back to Alibaba in
2012 for $4.3bn (after tax), and returned $3.65bn of that to shareholders.
Yahoo made $0.65bn after taxes.

They sold more shares during the Alibaba IPO, and made $6.3bn (after tax),
with a pledge to return $3.15bn. Yahoo made $3.15bn from the IPO.

Yahoo's remaining stake is now valued at $40bn, which they intend to spin off
into another company -- seemingly with no ownership interest for Yahoo (and
therefore, no further financial stake).

So over the course of ten years, Yahoo turned $1bn into $3.8bn. A 14.3% APY is
nothing to sneeze at, but It sure is a far cry from the $103bn / 58.5% APY
they could have had if they retained all of their Alibaba shares today. Even
taking 40% off for taxes and a few billion for dividends, that is a lot of
walking around town money.

Besides shareholder goodwill and getting Alibaba off their back, I don't see
what Yahoo gets of any real value. Yahoo's stock price will collapse when the
Alibaba shares are spun off. A company worth $1-10bn has a lot more potential
buyers than a $50bn company, and someone will acquire and consume Yahoo
shortly thereafter. Unless they announce plans to spin off the Yahoo Japan
shares, in which case a potential acquirer just needs to wait to pick them up
for a few hundred million after that event.

~~~
dcole2929
I agree with your thinking here but I don't think Marrissa had a choice
either. Long term thinking if Yahoo wants to stick it out as an independently
operating company this move is most likely short sighted, but at this point
none of the investors want that. It's pretty clear that a large part of the
board no longer believes in Yahoo's potential for success. They just want the
money that is tied up in the Alibaba stock so they can move on with other
ventures. Marissa's choices were either find a way to put a big chunk of cash
in shareholder pockets ASAP or face a hostile board that was going to do it's
best to take control of the company and divest the Alibaba stock anyway (you
can see that certain characters on the board have been angling for this for a
while now). Either way Yahoo probably loses but at least this way she has
bought the company time to try and turn the corner and see if her vision can
work.

------
rokhayakebe
Several have been critical of Marissa's performance. Can you please briefly
explain why? Bonus for sharing what you would have safely expected from a
Yahoo CEO in two years.

~~~
StevePerkins
This New York Times piece does a really nice job of cataloging all of the
criticisms:

[http://www.nytimes.com/2014/12/21/magazine/what-happened-
whe...](http://www.nytimes.com/2014/12/21/magazine/what-happened-when-marissa-
mayer-tried-to-be-steve-jobs.html)

------
jackgavigan
Does anyone know why Yahoo! can't simply distribute its Alibaba shares to the
Yahoo! shareholders? I'm assuming it would incur a tax liability of some kind
but I haven't seen any explanation or discussion as to why it's not as good an
option as the spin-off plan.

~~~
ucha
It's the same thing. Distributing the shares or creating a spin-off that
current Yahoo shareholders will own is the same.

The other option would have been to sell the Alibaba shares and give the
proceeds to shareholders but in that case, they'd have to pay 35% in taxes.

~~~
jackgavigan
I don't think it _is_ quite the same thing. This plan will result in Yahoo!'s
shareholders being given shares in SpinCo, which will own Alibaba shares.

Distributing the Alibaba shares directly to the Yahoo! shareholders would
result in them owning Alibaba shares directly.

~~~
Someone1234
Maybe its about power/control.

If they gave out the shares then most shareholders would likely just resell
them onto the open market.

However with the spin-off now they have a great little power house to direct
and influence Alibaba.

------
smackfu
So current investors will get stock in Yahoo-Alibaba, a company that exists
only to own Alibaba stock, and then they can sell their stock in that new
company as if it they owned the Alibaba stock itself?

~~~
PhoenixWright
Yes which sounds stupid until you realize they didn't own "Alibaba stock
itself," Yahoo did. Yahoo could've used that money as it wished but activist
investors held Mayer's job as ransom, and she just payed in full.

~~~
super_sloth
To be fair, the market put such a small premium on the non-Alibaba value in
Yahoo largely because they weren't confident that Yahoo wouldn't just squander
it.

Yahoo's purchase of Tumblr for nearly a billion dollars is a great example.
That asset will likely never give Yahoo a return.

~~~
pstuart
Are there any Yahoo acquisitions that haven't been complete disasters?

~~~
scott_karana
Flickr and Tumblr haven't been disasters (yet) for _users_ , at least... :)

~~~
ceejayoz
Flickr stagnated for nearly a decade post-acquisition.

~~~
dcole2929
it's ironic because technically Yahoo and their acquisitions are sound. Flickr
is still one of the best looking photo sites around, and from what I hear from
my Photography friends performs like a champ. Tumblr likewise is a good
technological investment. I think the failure has been turning good technology
into money, which is where a lot of companies fail. The beauty of Flickr and
Tumblr are ruined as soon as you start heaping crap tons of banner ads on
every page. But that said you still have to find a way to generate revenue
from those investments.

------
kolbe
I cannot for the life of me figure out how Yahoo! is making this spinoff tax-
free. How can a non-Investment Company spin off an Investment Company? How can
this new Investment Company be exempt from diversification rules?

This is just my opinion, but if Yahoo has figured out and easy way for
corporations to directly exempt themselves from capital gains taxes, this may
be their most significant contribution to the world yet. And Warren Buffett
should be very thankful!

~~~
jarcane
Yes, let us all cheer for the latest means by which a corporation has managed
to avoid their tax obligations and continue to be a drain on society.

Whee.

~~~
henrikschroder
But at least they are delivering excellent value to shareholders!

------
the_arun
Here is the official video from Yahoo on FY14 earnings : Marissa Mayer
answering questions - [http://finance.yahoo.com/topics/yahoo-q4-full-
year-2014-earn...](http://finance.yahoo.com/topics/yahoo-q4-full-
year-2014-earnings/)

------
PhoenixWright
This demonstrates incredible weakness by Mayer. Giving away Yahoo's future in
order to save her own skin.

This should mark the end of Yahoo. I expect to see a merger or buyout soon
after this closes.

~~~
adwf
I've been waiting for either Alibaba or Softbank to step up and buy them out
for months. Now that they're spinning off the Alibaba shares, and given that
their core business is currently valued around $0 (by the market), I imagine
that Softbank might pick them up for a steal.

~~~
PhoenixWright
An Aol merger or SoftBank buyout seem like the most likely scenarios.
Microsoft might also be interested.

------
ep103
... why?

------
guelo
These tax loopholes are disgusting. All these greedy millionaires assholes.

------
alecco
This is sad on so many levels. Multi-billion tax avoidance, opportunistic
shareholders, an over-hyped CEO, and a good Internet company on its twilight.

