There are plenty of companies having a hard time these days, but when it comes to the IT sector, things go a little bit better. But that’s not the case for Yahoo. For this company no strategy seems to work and its hardships are starting to pile up. For now, Yahoo! seems to have plans to cut its Alibaba stake.
The news comes after two people related to the matter announced Yahoo was considering cutting its 40 percent stake in Alibaba Group to about 15 percent. The Yahoo board was scheduled to meet late yesterday to talk about the transaction.
Interesting enough, the decision comes after Alibaba tried to repurchase its stake a few weeks earlier. Back then the decision was opposed by former Yahoo Chief Executive Officer Carol Bartz. In all fairness, Bartz could have been right, as Alibaba is China’s biggest e-commerce company, which at times when the IT business starts focusing more and more on this particular field, holds a significant edge.
If Yahoo’s plan becomes a reality, then Alibaba will be able to repurchase the stake tax free. As a result Alibaba assets could be valued at about $14 a Yahoo share. In the end, it all boils down to more than $17 billion for Yahoo’s 40 percent stake.
In addition, sources say that Yahoo is also thinking about selling its entire stake in Yahoo Japan Corp. At the same time, Bloomberg writes that “Yahoo, buffeted by user attrition and search market share losses to Google Inc., is also considering proposals by private equity firms seeking to buy minority stakes”.
According to the Wall Street Journal and New York Times, Yahoo’s plan to sell most of its stake in Alibaba Group is a “double cash-rich split-off”. The issue at hand is that if Yahoo does decide to sell, the transaction itself is pretty complicated. Basically, Alibaba would have to create a subsidiary with another business chosen by Yahoo and swap those shares for some of the shares owned by Yahoo in Alibaba. Quite a mind-boggling plan, isn’t it?
Ben Schachter of Macquarie Capital said: “We’ve tracked this saga for long enough to know that this could be just another dead end.”. Schachter adds that if they find a “legitimate way to avoid the tax hit while retaining longer-term upside, this seems like the best possible solution for the Asia assets”.