Yahoo is likely to hit “pause” on any major decisions, says SunTrust analyst Robert Peck.
Yahoo’s board has been meeting this week to decide what to do. The plan was for the company to spin off its shares of Alibaba into a new standalone company at the start of 2016. This was supposed to be a tax-free way to reward Yahoo shareholders.
Yahoo owns 15% of Alibaba, which is worth ~$31 billion right now. Yahoo’s market cap is ~$32 billion.
But, there’s a problem with the plan. There’s a chance the IRS taxes the deal, thus negating the whole point of the complicated spin out.
As a result, investors aren’t crazy about the spin off. In fact, activist shareholder Starboard is telling Yahoo to spin off its core business, but hang onto its Alibaba shares.
Due to all the uncertainty, Peck thinks Yahoo’s board will need to take some more time to figure out what to do.
While this would put Yahoo in limbo, it would be better than making the wrong decision.
Here are Peck’s four reasons from his note:
- “We believe investors are expressing their concerns about the potential tax liability and would prefer the company to assess ALL options
- We believe there would be many suitors for Yahoo’s core asset including multiple PE firms and strategics like AT&T (T, $33.10, NR), Verizon (VZ, $44.56, NR), Disney (DIS, $111.89, NR), NewsCorp (NWSA, $13.78, NR), and Comcast (CMCSA, $59.62, Neutral)
- We believe that Aabaco could trade at a significant discount to NAV due to tax concerns
- Per the WSJ article, Alibaba (BABA, $82.59, Buy) may be interested in YHOO post a core spin, but not as interested in shares of Aabaco.”
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