Yahoo finally sold its core business to Verizon for $5 billion on Monday, but that’s just the first step towards reaching a much bigger goal: monetizing its Alibaba shares.
Yahoo shares post-acquisition will still be worth almost $40 billion, largely because of its ownership stakes in Yahoo Japan and Alibaba. Given its Yahoo Japan stake is estimated to be worth less than $10 billion, the real crown jewel of its remaining assets is its Alibaba shares.
But investors believe there are still a lot of hurdles to clear before Yahoo finds a way to cash out those shares. And for Yahoo stock that’s been tied to the value of Alibaba for years, that’s a major concern.
“The hope would be someone would come in and buy those shares at a premium,” Mizuho Securities’ Neil Doshi told Business Insider. “I’m not too sure why they would do that.”
Doshi says the general expectation is that Alibaba would buy back those shares because it doesn’t want to have two tranches of shares trading at different prices. Still, it’s unclear why Alibaba would chase this deal now.
Morgan Stanley’s Brian Nowak also downgraded Yahoo’s shares on Tuesday over concerns around the timing and structure of Yahoo’s Alibaba shares. He notes there are three big question marks around it:
- Timing of a monetisation event
- What would motivate Alibaba to buy these shares without a material discount (given retiring them would trigger a taxable event)
- Who other than Alibaba would be a willing buyer of this ~15% Alibaba stake without any effective voting control
SunTrust’s Bob Peck also wrote in a note Tuesday that Alibaba “may not be in any hurry to buy” back its shares, and noted it would cause Yahoo to sell it at a steeper discount, if a deal does happen.
But all these questions might be premature at this point. Yahoo hasn’t even decided who will be in charge of its remaining assets yet, leaving everything still up in the air.