Wednesday, September 14, 2011

2 Big Misconceptions About Yahoo!

NEW YORK (TheStreet) -- Over the last week, there has been a lot of speculation about whether and how Yahoo! (YHOO_) might get acquired.

The hounds have been circling the prey. There's clearly a lot of value embedded within Yahoo!'s core business, its stake in Alibaba Group and in its stake in Yahoo! Japan.
However, there are many misconceptions shared in the mainstream media, including the venerable Wall Street Journal, surrounding some aspects of how value might be unlocked. Let me correct these misconceptions.
First, let's talk about if Microsoft (MSFT_) or any other company was to swallow Yahoo! whole. Some have speculated that such a move would trigger a change-in-control clause that's part of the 2005 investment between Yahoo! and Alibaba Group. If that was true, Alibaba Group (or stakeholder Softbank) could object to such a deal and have a "right of first refusal." That would lower the value of Yahoo!'s 40% stake in Alibaba Group.
Yet, I've spoken to investors in both Microsoft and Yahoo! -- some of whom have spent a lot of money on multiple law firms to go through the agreements -- and they are firmly of the opinion that this view is false. When Microsoft proposed acquiring Yahoo! back in 2008, a "change of control" clause would not have been triggered because Yahoo! would not have ceased to exist. The company would have continued as an operating entity under Microsoft. Microsoft would have gained full access to the Alibaba Group (and Yahoo! Japan) stake. Jerry Yang would have remained on the board. Yahoo! would still have the right to appoint a fifth member to the Alibaba Group board.

The Tax Fallout

The second misconception is around what the tax implications are for Yahoo!'s stake in Yahoo! Japan and Alibaba Group. Several media reports have indicated that these tax issues are weighing on Yahoo!'s ability to spin off or dispose of these assets.
If Yahoo! has any plan to dispose of its Alibaba Group stake, they certainly haven't said anything along those lines, even though I've spoken out in favor of them selling 10% of their stake (4% of Alibaba Group overall). However, Yahoo! has been talking about unloading their stake in Yahoo! Japan since at least January -- and yet, they haven't done it, frustrating investors.

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