for a potential sale/breakup of the company and Alibaba Group’s Chairman Jack Ma discounted his role in CEO Bartz’s departure, (the two had battled frequently in recent months over Yahoo’s 40% ownership stake) the fact remains that figuring out how to unlock the value in Yahoo’s Asian assets remains the biggest hurdle to any deal.
“That’s what continues to be the biggest debate,” notes one Yahoo insider. “Yes Yahoo has these great Asian assets, but they don’t do us any good anymore.”
Among the options Yahoo is exploring is the establishment of a tracking stock(s) that would attempt to mirror the value of the underlying Asian assets. “There’s simply no way to spin off the Asian assets tax free,” said the Yahoo veteran. “However, there are ‘non-ideal’ ways to realise the value of those assets. Think tracking stock–and yes, we all know how screwy those are.”
Tracking stock is a specialised equity offering issued by a company that mirrors the operations of a wholly owned subsidiary of a diversified firm.The tracking stock trades at a price related to the operations of the specific division of the company being “tracked”. Tracking stock typically has limited or no voting rights.
Often, the reason for establishing a tracking stock is to separate a high-growth division from a larger parent company. The parent company and its shareholders remain in control of the subsidiary’s or unit’s operations. In the late 1990’s, some diversified media companies identified their Internet operations as high growth divisions that would benefit from a tracking stock and the best-known example is The Walt Disney Company, which issued a tracking stock for go.com. But investors do not always fully understand or trust that the tracking stock accurately reflects the underlying business and Disney eventually retired the tracking stock.
While this may represent a potential solution for Yahoo’s existing shareholders to unlock some value from the company’s Asian assets, it’s not clear whether such a plan really benefits the company itself as it tries to plot its future course.
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