YHOO - Yahoo Inc.

[thepupil]

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%..

 

I imagine the 25% borrow will go away very quickly, the float is $25B+ now and you can't as a BABA long get paid 25% annualized to own a growth story. Shares will make their way to the lending desks.

 

I just did $100 YHOO / $50 BABA , no real science. BABA is a greater % of the value than 50% but like i said i wanted to underhedge.

[usdtor05]

Has anyone considered Softbank taking out Yahoo?

 

I found it interesting that Yahoo brought themselves down to around 15% and Softbank is around 32% post dilution. A combination without the dilution of Softbank and the Yahoo sale would have put them over 50% which I am guessing Ma would not have liked and China would not be ok with.

 

Although he already consolidates Yahoo Japan, the deal would also give him 75% of that business which candidly I do not know enough to bet as to whether he would want an even larger stake in that...any comments would be appreciated.

 

If we look at a potential deal, the premium required (say 30%) would basically be the FMV of BABA, Yahoo Japan plus the cash/securities - debt. This is assuming they structure it in a way to eliminate taxes owed on BABA and Yahoo Japan. He would essentially purchase the operating business for free at these figures so the play would be to get the other assets and find a way to get the core operations really going...I have no idea the chances of this occuring.

 

Looking Softbank, this would likely have to be primarily a stock deal. There is roughly $42B (as of 3/31 the change hasn't been overly material) in debt (ex-Sprint and I am including the lease obligations as debt) on EBITDA of Softbank Mobile/Softbank Telephony TTM EBITDA of $11,294 (could argue they could use internet EBITDA as well which is $13,161). Ex-internet EBITDA this puts you at 3.75 net debt/EBITDA. 

 

I am not sure how Yahoo shareholders would react but it would monetize the assets without affecting them from a tax perspective and it would put it in the hands of one of the best entrepreneurs out there in Son.

 

One fun aside, Son was asked on BBG if he was considering a deal for YHOO and he basically smiled and said he couldn't talk about it which means nothing but is interesting given his smile at the question....probably just because he had heard it so many times.

[WeiChiLoh]

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%..

 

Again, I dont think it is appropriate to take out taxes from the SOTP analysis as that seems inconsistent. But regardless,

 

some rough math. baba = 37B. Net taxes = 37B * 60% = 22B.

 

Net Baba + yahoo japan + net cash = 40B.

[mcliu]

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%..

 

Again, I dont think it is appropriate to take out taxes from the SOTP analysis as that seems inconsistent. But regardless,

 

some rough math. baba = 37B. Net taxes = 37B * 60% = 22B.

 

Net Baba + yahoo japan + net cash = 40B.

 

What do you mean by inconsistent?

 

How did you get to $40B? Here's my math:

 

$41.5B diluted market cap - $8.5B net cash (net of tax on IPO sale) - $22B BABA (net of tax) - $5B Japan (net of tax) = $6B Core Yahoo

 

 

[fareastwarriors]

Starboard Pushes For Potential Yahoo-AOL Tie-Up

 

Activist Also Wants Internet Pioneer to Slow Acquisition Strategy

 

 

 

http://online.wsj.com/articles/starboard-pushes-for-potential-yahoo-aol-tie-up-1411748457?tesla=y&mg=reno64-wsj

[thepupil]

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%..

 

I imagine the 25% borrow will go away very quickly, the float is $25B+ now and you can't as a BABA long get paid 25% annualized to own a growth story. Shares will make their way to the lending desks.

 

I just did $100 YHOO / $50 BABA , no real science. BABA is a greater % of the value than 50% but like i said i wanted to underhedge.

 

No more issue with BABA short and Starboard ruffling the feathers. put a little more on today (5% YHOO / -2.5% BABA ).

 

Crowded and overly simple trade that i'm sure will take a long time to work itself out, but still seems like a good risk / reward to me.

 

 

 

http://seekingalpha.com/news/2003135-alibaba-forms-moderate-short-interest-strong-options-debut-expected

    A week after Alibaba's (BABA +0.5%) IPO, 12.1M shares (3.3% of the float) have been shorted, according to Markit's data.

    Though a sizable figure, it's still well below the double-digit percentages seen for many high-beta tech/Internet names. Markit reports the interest rate to borrow Alibaba shares has fallen to 0.5%, well below an initial 8%."The rate has come down significantly and this is likely due to the fact that there are a lot of shares available to lend out," says Markit's Andrew Laird.

    Meanwhile, given huge trading volumes for shares thus far, Alibaba options volumes are expected to be huge when options become available on Monday. Alibaba's volatility should lead to sizable initial premiums.

 

 

[thepupil]

keep making this bigger...now using the normal hedge ratio of $100 YHOO / -$85 BABA.

 

The Japan/Cash/YahooCore stub is worth  about $20 pre-tax and can be bought for $6, and Yahoo is supposedly using some of that cash to buy back shares.

 

It will take tremendous idiocy and capital allocation to impair Yahoo net of BABA at this price.

 

 

http://www.thestreet.com/story/12896359/1/kass-why-now-is-a-good-time-to-be-an-investor-in-yahoo.html?puc=yahoo&cm_ven=YAHOO

Sum-of-the-Parts Calculation

Adding the above components yields an untaxed sum-of-the-parts value of Yahoo at $58.20 per share, and a taxed value of approximately $42.50 per share -- against the Friday's close of $40.50.

 

[fareastwarriors]

Starboard's real plan: A Yahoo Inc. without Yahoo

 

 

http://www.cnbc.com/id/102050133?trknav=homestack:topnews:5

[blainehodder]

I agree with the stub being cheap, but I bought the straight Yahoo equity today.

[fareastwarriors]

Yahoo Nears Investment in Snapchat

 

Internet Portal Part of Fundraising Talks That Value Messaging App at $10 Billion

 

 

http://online.wsj.com/articles/yahoo-nears-investment-in-snapchat-1412361684?mod=WSJ_hp_LEFTWhatsNewsCollection

[thepupil]

 

It will take tremendous idiocy and capital allocation to impair Yahoo net of BABA at this price.

 

 

Looks like tremendous idiocy may very well be the order of the day.....

 

 

WSJ: Yahoo set to invest in Snapchat at $10B valuation

Oct 3 2014, 14:54 ET | By: Eric Jhonsa, SA News Editor [Contact this editor with comments or a news tip]

 

    The WSJ reports Yahoo (YHOO +1.7%) is near a deal to invest in Snapchat at a $10B valuation through a new funding round. No word yet on how much Yahoo will be pouring in. The paper previously reported VC firm Kleiner Perkins will be taking part in the round.

    Snapchat's ephemeral messaging service now has 100M+ monthly active users, a figure that still puts it well below Twitter (271M at the end of Q2), WhatsApp (600M+), and several other peers. An ad service is set to launch later this year.

    A Snapchat deal arguably provides fresh ammo for Starboard Value, which has criticized Yahoo's M&A efforts and wants its Alibaba/Yahoo Japan stakes monetized and returned to shareholders. CNBC has reported Starboard wants Yahoo to spin off its core operations to enable a tax-efficient distribution of the Alibaba/Yahoo Japan stakes.

    Yahoo has thus far only promised to return "at least half" of its Alibaba IPO windfall (pre-tax proceeds of $9.4B) to shareholders.

    AOL (AOL +1.3%), which Starboard wants merged with Yahoo, has dipped slightly on the report, but remains up on the day.

 

 

[thepupil]

Earnings out...not that i really care what Yahoo!'s operations are doing, but we get some clarification and exact cash balances.

 

Marissa may be buying dumb shit, but at least she is buying Yahoo shares.

 

We repurchased ~8 million shares of stock at an average price of $36.76 for $282 million in the third quarter. In addition, we entered into an accelerated share repurchase agreement under which we prepaid $1.1 billion and received an initial delivery of approximately 15 million shares on September 30, 2014. Final settlement occurred on October 17, 2014, resulting in a total of approximately 23.5 million shares repurchased for $933 million.

 

Updating for the share repurchase and now that we have exact clarification on tax bill and exact numbers on cash, I am getting

 

$8.00 / share in net cash (post tax, post share repurchase)

$35.56 BABA pretax

$7.66 in Yahoo Japan pretax

$51.16 of pretax NAV before core operations and $57.32 marking Yahoo core at 5X

 

So stock is about 72% of total NAV and 80% of "mark Yahoo at 0 NAV". The Marissa Mayer value gap is now calculated over 980mm shares and is about $16B.

 

Yahoo net of BABA stub is at $5.70 versus $21.80 of value.

 

 

 

[CorpRaider]

Earnings out...not that i really care what Yahoo!'s operations are doing, but we get some clarification and exact cash balances.

 

Marissa may be buying dumb shit, but at least she is buying Yahoo shares.

 

We repurchased ~8 million shares of stock at an average price of $36.76 for $282 million in the third quarter. In addition, we entered into an accelerated share repurchase agreement under which we prepaid $1.1 billion and received an initial delivery of approximately 15 million shares on September 30, 2014. Final settlement occurred on October 17, 2014, resulting in a total of approximately 23.5 million shares repurchased for $933 million.

 

Updating for the share repurchase and now that we have exact clarification on tax bill and exact numbers on cash, I am getting

 

$8.00 / share in net cash (post tax, post share repurchase)

$35.56 BABA pretax

$7.66 in Yahoo Japan pretax

$51.16 of pretax NAV before core operations and $57.32 marking Yahoo core at 5X

 

So stock is about 72% of total NAV and 80% of "mark Yahoo at 0 NAV". The Marissa Mayer value gap is now calculated over 980mm shares and is about $16B.

 

Yahoo net of BABA stub is at $5.70 versus $21.80 of value.

 

I think yahoo finance and sports are worth a few bucks. 

[DCG]

The main Yahoo Finance page has gone to complete shit. They bombard you with a ton of awful adds for things like Body Building (that open fake ESPN sites), and try to disguise them as legitimate articles. The only other Yahoo service I frequently use, Yahoo Sports/Fantasy sports, has also gone downhill in the last couple years.

 

 

I don't have much faith Marissa Meyer knows what she's doing, and Yahoo is likely too sprawled out at this point that I doubt she ever even visits some of their many website properties.

[Picasso]

Is it just me, but shouldn't YHOO be up a lot more right now after news of this tax-free spin?

[thepupil]

NOTE: I'm editing these numbers to account for the share repurchases and use of cash. Please run your own numbers because every time i update these, the numbers change slightly on market movements. Also I may have misinterpreted the balance sheet and share repurchases. do your own DD!

 

It has traded up from 80% of NAV to 84% of NAV. At $51.50 and $103.55, BABA / share is $41.23, so the stub is at $10.1

 

The stub is now $10.1 per share (up from $4-8 in the months before the news and about $8.50 today). In my opinion it is worth $20.3. With the uncertainty reduced by today's news, it is an interesting trade from here because you create a cash and Yahoo Japan rich RemainCo at a low valuation.

 

This is what you buy for $10.1

 

$6.0  Net Cash

$7.5  Yahoo Japan

$6.8  Core <--- this is taken from a sell side note i just pasted in. If you have a variant view on Yahoo Core, it could be worth more than 5X EBITDA

 

The biggest risk is somehow the IRS derails the plan. Or Marissa Mayer now feels that she has free reign to light fire to the remaining cash.

 

 

 

 

[mcliu]

What would be the cost basis of the SpinCo that investors receive? Would it be the same as Yahoo's cost basis for BABA? So if you ever sold SpinCo, would you have a large tax bill?

[thepupil]

What would be the cost basis of the SpinCo that investors receive? Would it be the same as Yahoo's cost basis for BABA? So if you ever sold SpinCo, would you have a large tax bill?

 

typically (at least with every spin off with which  i've been involved), your cost basis is split pro-rata (according to assigned value) between RemainCo and SpinCo based upon a set ratio, usually determined by the company and its advisers or some average trading price following the separation. So let's say your cost basis is $10 / share and SpinCo represents 80% of the value, then you have cost basis of $8 in SpinCo and $2 in RemainCo.

 

Does anyone have any thoughts as to whether or not SpinCo, which will be a 40 act fund that holds a bunch of BABA, will trade at a discount to BABA? We were discussing this at work just now. I think it will not. It will be a liquid large cap entity ($39B market cap at current prices) and have no uncertainty with respect to capital allocation or any of the other typical conglomerate / holdco concerns. If anything, I think the discount would be similar to dual listings or share classes of large cap  stuff like GOOG/GOOGL or RDS or BRK/A BRK/B ( de minimis spreads that sometimes blow out a few percent at random)

[Chalk bag]

The fair value for YHOO now should be in the 53-55 ball-park assuming 10% SOTP discount. I think there'd be some extreme volatility tomorrow -- as this is the most crowded trade in the event-driven land (and one that actually works). I'll take my $7 / share and run - the next leg is if YHOO decides to merge with AOL or something. On the flip side, if anything is looking for a trade, Long BABA tomorrow should be a decent one...

[Hielko]

I was thinking about the same issue. I don't think that there should be a large difference since both companies will be large and liquid, but you never know. There is no arbitrage possible and there are also plenty of stocks with dual listing and multiple share classes where the pricing is less than rational, although there are often large liquidity differences in those cases as well.

[cmlber]

I was thinking about the same issue. I don't think that there should be a large difference since both companies will be large and liquid, but you never know. There is no arbitrage possible and there are also plenty of stocks with dual listing and multiple share classes where the pricing is less than rational, although there are often large liquidity differences in those cases as well.

 

I disagree, it should definitely trade at a discount, the question is how much of a discount. 

 

If the SpinCo owns $40 billion worth of BABA stock and has a deferred tax liability of $16 billion, what would you rather buy if you had $40 billion, the SpinCo, or $40 billion worth of BABA?  There is a right answer to that question, it's BABA, so the SpinCo has to trade at a discount. 

[mcliu]

I was thinking about the same issue. I don't think that there should be a large difference since both companies will be large and liquid, but you never know. There is no arbitrage possible and there are also plenty of stocks with dual listing and multiple share classes where the pricing is less than rational, although there are often large liquidity differences in those cases as well.

 

I disagree, it should definitely trade at a discount, the question is how much of a discount. 

 

If the SpinCo owns $40 billion worth of BABA stock and has a deferred tax liability of $16 billion, what would you rather buy if you had $40 billion, the SpinCo, or $40 billion worth of BABA?  There is a right answer to that question, it's BABA, so the SpinCo has to trade at a discount.

 

I guess idea would be for the SpinCo to never sell the shares and forever defer the tax liability?

[snailslug]

I was thinking about the same issue. I don't think that there should be a large difference since both companies will be large and liquid, but you never know. There is no arbitrage possible and there are also plenty of stocks with dual listing and multiple share classes where the pricing is less than rational, although there are often large liquidity differences in those cases as well.

 

I disagree, it should definitely trade at a discount, the question is how much of a discount. 

 

If the SpinCo owns $40 billion worth of BABA stock and has a deferred tax liability of $16 billion, what would you rather buy if you had $40 billion, the SpinCo, or $40 billion worth of BABA?  There is a right answer to that question, it's BABA, so the SpinCo has to trade at a discount.

 

Ultimately Alibaba merges with SpinCo by issuing BABA stock, and retires the BABA shares owned by SpinCo, which makes the tax liability go away.

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

[innerscorecard]

So the event-driven trade actually continues, since you can hold SpinCo for one year and wait for its price to somewhat close to the value of its shares as the date of possible sale approaches. The risk you are taking is the risk that this sale never materializes, and that once that is clear, any possibility that the sale would occur that is already priced in to SpinCo is also removed from the price of Spinco, which may then go possibly even lower than what you would have gotten for SpinCo if you had sold it earlier.

[cmlber]

I was thinking about the same issue. I don't think that there should be a large difference since both companies will be large and liquid, but you never know. There is no arbitrage possible and there are also plenty of stocks with dual listing and multiple share classes where the pricing is less than rational, although there are often large liquidity differences in those cases as well.

 

I disagree, it should definitely trade at a discount, the question is how much of a discount. 

 

If the SpinCo owns $40 billion worth of BABA stock and has a deferred tax liability of $16 billion, what would you rather buy if you had $40 billion, the SpinCo, or $40 billion worth of BABA?  There is a right answer to that question, it's BABA, so the SpinCo has to trade at a discount.

 

Ultimately Alibaba merges with SpinCo by issuing BABA stock, and retires the BABA shares owned by SpinCo, which makes the tax liability go away.

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

 

Interesting.  But wouldn't an issuance of BABA stock to purchase SpinCo result in SpinCo realizing it's gain since it's a "sale"?