Since it was first announced in early September that Yahoo CEO Carol Bartz was fired, and Third Point’s Dan Loeb had acquired a large stake in the company, there have been rumours swirling about who was going to eventually acquire the company.
With last nights news that Chinese Internet company Alibaba was going to IPO as a whole, instead of separate companies, we may have found our answer.
According to Eric Jackson, of Ironfire Capital, he believes that this could be a precursor for Alibaba, run by CEO Jack Ma, to eventually take over the Sunnyvale, Calif.-based Internet giant.
This ideas has been mentioned before, first by Loeb in his letter filed with the SEC to the company, and again at the Delivering Alpha conference a few weeks ago. Loeb is especially bullish on Alibaba, and hinted that Ma could potentially be part of a transaction to take Yahoo! private. The problem has been, as Loeb so aptly said, “No one wants to work with these clowns on the board.”
It has long been known that Ma has tried to get his Alipay stake out from Yahoo, and even almost got Alipay away from Yahoo without their knowing, but the parties involved eventually came to an agreement.
Jackson speculated that an IPO of Alibaba Group IPO would make the company worth somewhere between $40 and $60 billion. That is two to three times more than Yahoo itself, and Yahoo owns a 39% stake int he company. That means Yahoo’s stake could be worth anywhere between $15.6 billion and $23.4 billion. Essentially, that means Yahoo is trading for almost nothing, and if Alibaba does IPO as a whole, this could be the company to take it over. Loeb said that he thinks Yahoo is worth anywhere between $19 and $31 per share, and a higher valuation on the Alibaba IPO would put the Yahoo share price closer to the higher end of Loeb’s range.
Since Yahoo turned down the $33 per share offer from Microsoft back in 2008, it has long been known that Yahoo’s current management team was not the team to lead the company anymore, and change was needed. The board of directors have been described as a joke, and Loeb has tried to work with them to get them to do something. The company finally acknowledged it was up for sale, but the actions of Chairman Roy Bostock have made things all the more difficult.
With this recent news that Alibaba is going to IPO as a whole, it could mean that Alibaba, and not Silver Lake Partners, Microsoft, or any of the other potential suitors is the best name to take over Yahoo and extract the value out of it.
Traders who believe that Yahoo eventually gets taken over might want to consider the following trades:
- Traders may want to consider going long Yahoo, either with the common stock, or long dated calls.
Traders who believe that Yahoo will bungle a sale again may consider an alternate positions:
- The board, led by Bostock and co-founder Jerry Yang already messed up one bid from Microsoft. The board is still mostly the same from back then. If you believe the board screws this up, consider shorting the name.
— Jonathan Chen
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