Verizon sale leaves Yahoo investors betting on a stub

Tue Jul 26, 2016 1:10am EDT
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By Liana B. Baker

(Reuters) - Yahoo Inc shareholders may be left betting on how quickly, if at all, the former web pioneer can cash in on its multi-billion dollar stakes in two Asian peers after Monday's deal to sell its core internet assets to Verizon Communications Inc.

Most of Yahoo's $36.4 billion market value is derived from its 15 percent stake in Chinese online commerce company Alibaba Group Holdings Ltd and its 35.5 percent stake in joint venture Yahoo Japan Corp. These are not included in Yahoo's deal with Verizon.

Investors will be hoping for a quick sale of these stakes, but Yahoo has been looking for years without success for a way to make money from the investments without incurring a huge tax bill. Yahoo declined to comment on potential scenarios on Monday.

Prior to running an auction for its core business, which included its advertising tools and internet assets such as search and email, Yahoo explored spinning off its stake in Alibaba to Yahoo shareholders, but abandoned the plan because the U.S. Internal Revenue Service would not provide assurances it could be carried out on a tax-free basis.

The scenario many investors are now rooting for is Yahoo Japan and Alibaba buying back these stakes from Yahoo in some way that saves on taxes. Even though they would likely buy back these shares at a discount, Yahoo investors would benefit, according to Eric Jackson, managing director at SpringOwl Asset Management LLC, which owns Yahoo shares.

"Hopefully by the end of this year, we have some sort of transaction, preferably with Alibaba buying its stake back and Yahoo Japan buying its stake back," Jackson said.

Such a deal would likely involve some tax, due to the fact that the stakes have appreciated greatly in value, but it is unclear how much.

Bankers and analysts argue it is most likely that Yahoo will find a way to divest its Yahoo Japan stake, worth more than $8 billion on paper, before making any decision on the Alibaba stake, which is worth more than $30 billion.   Continued...

A combination photo shows Yahoo logo in Rolle, Switzerland (top) in 2012 and a Verizon sign at a retail store in San Diego, California, U.S. In 2016. REUTERS/File Photos