Yahoo gets a lift from Alibaba/SoftBank M&A speculation

After talking with an unnamed "large Yahoo shareholder that is preparing a presentation" featuring a similar thesis, fund manager Eric Jackson thinks there's a good chance Alibaba (Pending:BABA) or SoftBank (OTCPK:SFTBF) will acquire Yahoo (YHOO +3.3%).

His reasoning: Whereas the value of Yahoo's stakes in Alibaba and Yahoo Japan (OTCPK:YAHOF) are currently discounted for future tax payments, the pre-tax valuations are what matter to Alibaba and SoftBank. The former would be buying back a 22.5% pre-IPO stake in itself, and the latter would be adding to its respective 34.3% and 43% stakes in Alibaba and YJ.

Jackson estimates Yahoo's assets are worth $56/share to either acquirer - he values the post-IPO Alibaba stake at $33, the YJ stake at $9, and Yahoo's core business at $5, and adds $9 for cash (inc. IPO share sales).

He speculates Alibaba (were it the buyer) could trade the YJ stake to SoftBank for part of its Alibaba stake (adding to the scope of its buyback), and notes new SoftBank Internet/media chief Nikesh Arora reportedly wanted to buy Yahoo while at Google.

One caveat: Acquiring Yahoo would give SoftBank a 56.8% stake in Alibaba before factoring IPO dilution. The Chinese government likely wouldn't be pleased with that. Jackson suggests SoftBank could trade part of its Alibaba stake post-acquisition for "something of similar value," but doesn't say what.

Previous: Alibaba reportedly planning September IPO

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Comments (17)
  • Gregory Block
    , contributor
    Comments (329) | Send Message
    If Yahoo is worth $56/share to either buyer, what would the takeout price be?
    23 Jul 2014, 09:49 PM Reply Like
  • johnnyhaha
    , contributor
    Comments (239) | Send Message
    $45 per the article put out by Forbes which is where this information came from.
    23 Jul 2014, 09:55 PM Reply Like
  • Gregory Block
    , contributor
    Comments (329) | Send Message
    Thanks for the clarification, johnnyhaha. I just read the Forbes article, and an article by the same author where he calculated the fair value of Yahoo at $46/share, even without an Alibaba buyout. Either way, it's not bad...
    23 Jul 2014, 10:18 PM Reply Like
  • nedilwo
    , contributor
    Comments (70) | Send Message
    Is the article of which you speak this one (link)?


    I also read a Jan 1014 article re similar acquisition, but by Microsoft. Old news at this point I think, but some interesting info can be gleaned.
    24 Jul 2014, 11:44 AM Reply Like
  • Jeremy Raper
    , contributor
    Comments (483) | Send Message
    As an unashamed Yahoo long I would love nothing more than this to be true. Having said that - it's pretty unrealistic. In Alibaba's case: why would they sell stock at $150bn (assuming the IPO comes there) then offer to buy it back at likely a much higher valuation (say, $180bn) via a Yahoo tender? And in Softbank's case: buying Yahoo would take their Alibaba stake far, far too high (well above 50%) for Chinese regulators' comfort; also, their stake in Yahoo Japan (which would go near 75%) could lead to potential delisting requirements from the Tokyo exchange.


    It's actually much more likely that another company - Microsoft, Facebook, Tencent, etc - would buy Yahoo given the cheapness of the core biz and as a way to gain the Asian assets. At the very least, at least Jackson highlights how undervalued YHOO is.
    23 Jul 2014, 09:50 PM Reply Like
  • johnnyhaha
    , contributor
    Comments (239) | Send Message
    Read the Forbes article. Its explains what your questioning.
    23 Jul 2014, 09:59 PM Reply Like
  • rachcom
    , contributor
    Comments (75) | Send Message
    Agreed Jeremy...I dont think BABA or STFBK is interested or they would have made a move long ago and hit would have been that Yhoo is no longer required to sell any shares but another scheme maybe in play here as i find very suspicious that this "news" comes out now that people lost interest in this buyout saga....pump and dump, anyone?
    in any case Yhoo is at a crossroad and best case scenerio would be to be acquired by MSFT or AAPL....MSFT deal would be huge for nadella as he tries to shrug off from the failures of balmer and an AAPL acquisition would rock the world as the most valuable company could become even more valuable and recoup whatever they pay for Yhoo in a single day of trading in market cap expansion.
    Long Yhoo and hoping for Tim cook to get his head out of the sands and take over this amazing company at a discount while its available and fire MM.
    24 Jul 2014, 01:14 PM Reply Like
  • manfredthree
    , contributor
    Comments (3190) | Send Message
    We agree with that method of analysis done consistently pre-tax and after tax. We also believe the BABA ipo will go considerably higher if current economic growth data supports it. We believe core legacy Yahoo is more likely to be valued at $7 to $10. And we think MM is smart enough to figure out how to get 10 to 15% more with current moves. We're continuing to add to our 2016 itm calls on dips, seeing any deal as subject to time delays and arduous competitive suitors. And 'no deal' works fine for us, giving us a core position in BABA at the whisper price.
    What nobody is talking about (surprise) is that YHOO is under no compulsion whatever to do anything, and the same cannot be said of the others. And they better treat MM nice, she's one smart exec.
    23 Jul 2014, 10:23 PM Reply Like
  • MJ Pragmatist
    , contributor
    Comments (424) | Send Message
    This buyout makes sense to me. The extremely high U.S. tax is helping to drive a lot of M&A activity.
    23 Jul 2014, 10:40 PM Reply Like
  • Energysystems
    , contributor
    Comments (2130) | Send Message
    $YHOO may have a great investment in $BABA, but Yahoo's core business is faltering. Why would either $BABA or $SFTBF invest in it?
    24 Jul 2014, 12:31 AM Reply Like
  • boyeoshin
    , contributor
    Comments (10) | Send Message
    The goal is not an investment in YHOO but purchasing shares of Alibaba or Yahoo Japan at a discount.
    24 Jul 2014, 12:42 AM Reply Like
  • alpine
    , contributor
    Comments (2147) | Send Message
    It seems such a pity that Ms. Meyer may net get to show her best contributions if Yhoo gets taken out so soon. I'd hoped that Yhoo stayed independent for another year or so after the BABA IPO furore is behind her.
    24 Jul 2014, 12:46 AM Reply Like
  • bently
    , contributor
    Comments (1267) | Send Message
    Certainly a positive outlook,and I'm long YAHOO -- but there is a lot of speculation here. And usually the more complicated a scenario, the more critical we have to be of it. I am anxious to read the final draft of the "unnamed" shareholder's report and am wondering why he is letting someone steal his thunder before his presentation. Meanwhile, continued luck to everyone betting on YAHOO. (Jeremy's comments above are worth noting).
    24 Jul 2014, 08:44 AM Reply Like
  • jonnie14
    , contributor
    Comments (150) | Send Message
    Couldn't BABA use the Yahoo name to operate their business in America?
    24 Jul 2014, 09:52 AM Reply Like
  • Guy in Ithaca
    , contributor
    Comments (428) | Send Message
    Various winning scenarios seem to be multiplying here. Long YHOO.
    24 Jul 2014, 11:45 AM Reply Like
  • nedilwo
    , contributor
    Comments (70) | Send Message
    johnnyhaha.. Is the article of which you speak this one (link)?


    I also read a Jan 1014 article re similar acquisition, but by Microsoft. Old news at this point I think, but some interesting info can be gleaned.
    24 Jul 2014, 12:06 PM Reply Like
  • crazty4tennis
    , contributor
    Comments (1278) | Send Message
    YHOO dropped during this past week and then finally gained momentum. Like to see these highs more often than not. Long YHOO.
    24 Jul 2014, 04:27 PM Reply Like
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