Andy Dufresne Posted September 6, 2014 Share Posted September 6, 2014 In Hebrew we have a saying "Prophecy was given to fools" ... however, I will take this risk :) What I think will happen is that at some point Yahoo! will put its foot wrong, the share will get clobbered and then the chorus that is already sounding (much like in a Greek tragedy) will become deafening - let Alibaba buy it! This makes sense from both a tax perspective (Ali can likely also pay the most) and a geopolitical one - let us not forget that the Chinese government will probably be much happier if Alibaba is not controlled by a US company. The most likely trigger will be a combination of continued anemic or negative growth and bad purchases - I have yet to meet one person who thinks that giving Ms. Mayer 4 billion or so to spend (assuming she actually gives shareholders half of the proceeds) is wise given her less than stellar track record of acquisitions and even poorer choice of words describing herself as a "good steward of capital" ... Would love to hear how other people are doing the Yahoo! SOTP given that we have a rather large and interesting spread of valuations, from Damodaran's 140 bn in mid-June to 245 bn from a Bernstein analyst: http://blogs.wsj.com/moneybeat/2014/04/16/like-ten-teslas-combined-analyst-pegs-alibaba-valuation-at-245-billion/ Also, how are you planning to play this? Common ? ITM/ATM/OTM Options? In any case I expect the hype machine to go into warp 9+ overdrive come Monday 8) Link to comment Share on other sites More sharing options...
jouni1 Posted September 6, 2014 Share Posted September 6, 2014 fun to see if people actually value a bunch of chinese websites at 160 billion. BAC is ~160 billion. i'll stay on the sidelines. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted September 19, 2014 Share Posted September 19, 2014 Yahoo is beyond cheap now if you can hedge out the bets. Arbitrage opportunity - 25+%. Link to comment Share on other sites More sharing options...
saltybit Posted September 19, 2014 Share Posted September 19, 2014 Artificial overhang on yahoo due to shorts.. would be great to get these guys caught in a short-squeeze. If some activist investor announces a position, it could very well happen http://yhoo.it/1v1i4ri Link to comment Share on other sites More sharing options...
Steve Posted September 19, 2014 Share Posted September 19, 2014 http://aswathdamodaran.blogspot.com/2014/05/yahoo-puzzle-mystery-and-enigma.html Professor Damodaran wrote a nice piece about yahoo's valuation .... this is a few months ago. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted September 19, 2014 Share Posted September 19, 2014 I think it's worth 60 at the current valuation. Yahoo_SOTP_Analysis.xlsx Link to comment Share on other sites More sharing options...
Wilson-TPC Posted September 19, 2014 Share Posted September 19, 2014 Someone "could" effectively arbitrage out this opportunity and make 50% almost risk free. Link to comment Share on other sites More sharing options...
simplefocus Posted September 20, 2014 Share Posted September 20, 2014 Hi Wilson-TPC, Which one do you think is a better play on BABA, YHOO or Softbank? What's your valuation for Softbank? Thanks. Link to comment Share on other sites More sharing options...
tnp20 Posted September 20, 2014 Share Posted September 20, 2014 Morningstar gives it BABA $90 fair value. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted September 20, 2014 Share Posted September 20, 2014 Hi Wilson-TPC, Which one do you think is a better play on BABA, YHOO or Softbank? What's your valuation for Softbank? Thanks. Dongxiang is the better play. B/w, Yahoo and SB, both are just as good. Never really studied SB Link to comment Share on other sites More sharing options...
saltybit Posted September 20, 2014 Share Posted September 20, 2014 Semi-interesting read on how Yahoo acquired the stake in Alibaba from someone who was part of the China trip on the Yahoo side http://recode.net/2014/08/06/when-yahoo-met-alibaba-the-third-time-was-the-charm/ Link to comment Share on other sites More sharing options...
tnp20 Posted September 20, 2014 Share Posted September 20, 2014 Wilson Did you take into account the capital gains taxes on the IPO money received by YHOO and capital gain tax on any future sale of BABA stock....probably close to a 38% tax hit. Link to comment Share on other sites More sharing options...
plato1976 Posted September 20, 2014 Share Posted September 20, 2014 anyone knows if the tax rate in japan is even higher? thinking about softbank... Wilson Did you take into account the capital gains taxes on the IPO money received by YHOO and capital gain tax on any future sale of BABA stock....probably close to a 38% tax hit. Link to comment Share on other sites More sharing options...
EliG Posted September 20, 2014 Share Posted September 20, 2014 anyone knows if the tax rate in japan is even higher? thinking about softbank... Seekingalpha author used 36% rate: http://seekingalpha.com/article/2478765-indirect-routes-to-alibaba-yahoo-vs-softbank Softbank's post-IPO Alibaba stake is expected to be 32.4%. At the mid-point of Alibaba's IPO pricing range of $60 to $66 per share (~2.5B shares outstanding), the stake is valued at $51.03B before tax. The after-tax value assuming a 36% tax rate (conservative assessment as Japanese corporate tax rate is expected to go down substantially in the coming years) is $32.66B. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted September 21, 2014 Share Posted September 21, 2014 I used 35%. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 23, 2014 Share Posted September 23, 2014 Does it make sense for YHOO to trade at $40? YHOO's Alibaba and Yahoo Japan stake already far exceed its market capitalization. This does not even include YHOO cash. http://chemiccapital.blogspot.com/2014/09/yahoo-sums-of-parts.html?m=0 Does my thesis make sense? Link to comment Share on other sites More sharing options...
DCG Posted September 23, 2014 Share Posted September 23, 2014 Well, that is assuming the market value of Alibaba doesn't go down. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted September 23, 2014 Share Posted September 23, 2014 What's preventing someone from shorting a proportionate amount of BABA while taking a long position in YHOO to offset the uncertainty in current price? Link to comment Share on other sites More sharing options...
mcliu Posted September 23, 2014 Share Posted September 23, 2014 I think it's hard to borrow BABA shares.. Also, if Yahoo! sells the remaining shares, they would have to pay capital gains taxes on them? Link to comment Share on other sites More sharing options...
valueinvesting101 Posted September 23, 2014 Share Posted September 23, 2014 This article was interesting: http://www.bloombergview.com/articles/2014-09-22/alibaba-could-buy-yahoo-for-free Link to comment Share on other sites More sharing options...
thepupil Posted September 23, 2014 Share Posted September 23, 2014 What's preventing someone from shorting a proportionate amount of BABA while taking a long position in YHOO to offset the uncertainty in current price? nothing. borrow was available for me yesterday. I am not shorting out the Yahoo Japan and am bit underhedged on the BABA, but to me it seems like a decent trade; these things can last a loooooong time though and get very out of whack. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 23, 2014 Share Posted September 23, 2014 I think it's hard to borrow BABA shares.. Also, if Yahoo! sells the remaining shares, they would have to pay capital gains taxes on them? Agree. but thats a fallacy isnt it? when doing SOTP, analysts do not deduct taxes from holdings right? In the same manner, shouldnt we assume that no tax losses? It seems more of the fact that people are finding reasons tonexplain such a glaring discrepancy rather than going through a logical process. Even if we assume Marissa Mayer sells out all of Alibaba and Yahoo Japan and pays a 40% tax on the sale, Yahoo would still be trading at a slightly negative EV. I think the margin of safety in this one is strong. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 23, 2014 Share Posted September 23, 2014 What's preventing someone from shorting a proportionate amount of BABA while taking a long position in YHOO to offset the uncertainty in current price? nothing. borrow was available for me yesterday. I am not shorting out the Yahoo Japan and am bit underhedged on the BABA, but to me it seems like a decent trade; these things can last a loooooong time though and get very out of whack. Normally I would agree with you. But in this case, I think that the price differential will not last long because this seems to be quite the high profile arb situation. And the asset value is readily ascetainable. So I think price should converge fairly quickly...and boost IRR. Link to comment Share on other sites More sharing options...
mcliu Posted September 23, 2014 Share Posted September 23, 2014 I think it's hard to borrow BABA shares.. Also, if Yahoo! sells the remaining shares, they would have to pay capital gains taxes on them? Agree. but thats a fallacy isnt it? when doing SOTP, analysts do not deduct taxes from holdings right? In the same manner, shouldnt we assume that no tax losses? It seems more of the fact that people are finding reasons tonexplain such a glaring discrepancy rather than going through a logical process. Didn't Yahoo! have to pay taxes on the 122 million shares that it sold into the IPO? So if it sold the other 400 million shares, why wouldn't it have to pay taxes on the remainder? If you assume that Yahoo! will hold on to its stake indefinitely, maybe taxes are not an issue, but if they are planning to sell the shares sometime in the future, I don't see why you wouldn't discount the taxes that need to be paid. Even if we assume Marissa Mayer sells out all of Alibaba and Yahoo Japan and pays a 40% tax on the sale, Yahoo would still be trading at a slightly negative EV. I think the margin of safety in this one is strong. Can you confirm that? How can EV possibly be negative if you take out a 40% tax? I can't find any borrow on IB and last borrow rates were 25%.. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted September 23, 2014 Share Posted September 23, 2014 What's preventing someone from shorting a proportionate amount of BABA while taking a long position in YHOO to offset the uncertainty in current price? nothing. borrow was available for me yesterday. I am not shorting out the Yahoo Japan and am bit underhedged on the BABA, but to me it seems like a decent trade; these things can last a loooooong time though and get very out of whack. What proportion did you buy/short? I imagine there's no practical way to net out Yhoo Japan/etc? Link to comment Share on other sites More sharing options...
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