Yahoo! may consider spinning off its Asian assets in a tax-free manner soon.
NEW YORK (TheStreet) -- Yahoo!(:YHOO) may be getting closer to a deal for its Asian assets, according to The New York Times.
In an interview, Eric Jackson of Iron Fire Capital said the company is exploring what is known as a cash-rich split. "Yahoo! is going to spin off the stakes they hold in Alibaba and Yahoo! Japan for almost $17 billion," Jackson said. He also mentioned the Yahoo! Japan stake is worth around $6.5 billion, and the 40% stake Yahoo! owns in Alibaba is worth almost $13 billion, so essentially, Yahoo's core operations and cash are being valued at next to nothing.
In order to do this deal in a tax-efficient manner, there has to be other assets thrown in, so that investors will be able to realize the monetization of these stakes without paying a huge tax bill, Jackson noted. Jackson is long Yahoo! shares.
With regards to the other assets that have to be thrown in, the article mentioned that Yahoo! would keep 15% of its stake in Alibaba, the Chinese Internet company.
Yahoo!'s board has reportedly been looking at offers from private equity companies like Silver Lake about a private investment in a public entity (PIPE) deal, which angered hedge fund Third Point and forced Third Point's Dan Loeb to write a letter to the board of directors. Third Point owns 5.2% of Yahoo!'s outstanding stocks.
If an Asian asset spin were to happen, it would cut against earlier reports of previous bids by private equity giants like Silver Lake, THL Partners and TPG Capital for a minority 20% stake interest in Yahoo!
The newest rumor of an Alibaba-led consortium should be no surprise. The company's founder Jack Ma has openly expressed his interest in buying back Yahoo's 40% stake in Alibaba, while Softbank has said it wants to purchase Yahoo!'s 35% stake in Yahoo Japan.
If the board, which is expected to meet on Thursday to consider the proposal, was to reject Alibaba and Softbank's bid, the companies could re-partner with private equity partners.
Previously the Blackstone Group(:BX) and Bain Capital had been rumored to be interested in a takeover bid where the PE firms would retain the company's existing search and display businesses, and Yahoo!'s Asian partners would buy back assets.
Scenarios that have been discussed in the press have included a full company sale, a divestiture of minority owned Asian assets like Alibaba and Yahoo! Japan, or a push for growth in online ad sales through acquisitions.
After firing Bartz, Yahoo! confirmed in a letter to employees that it had hired advisers to consider strategic alternatives to maximize shareholder value -- code for potential sales. In the letter, Yahoo! said it needed to "reignite" its business and anticipate how consumers would take in media content in the future
Yet it's still unclear whether Yahoo! will actually decide on a full or partial sale of the company. Yahoo!'s management rejected a $44 billion merger offer by Microsoft in 2008.
Third Point, Alibaba, and Yahoo! were not immediately available for comment.
Yahoo! shares were sharply higher on the news, up 5.6% to $15.95.
--Written by Chris Ciaccia and Antoine Gara in New York
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