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Understanding the background here is important. A year ago, Yahoo announced that they would spin off their stake in Alibaba (around 30B). Somewhere along the l
by phamilton 11y ago
Understanding the background here is important.
A year ago, Yahoo announced that they would spin off their stake in Alibaba (around 30B). Somewhere along the last year, it was determined that the spinoff might incur a huge tax bill, costing shareholders a few billion dollars. Last month, they decided to do a reverse spin-off. Instead of spinning off Alibaba, spin off everything else (which is only worth a few billion). The tax bill on 4B is much less than the tax bill on 30B.
In other words, all that would be left after the spinoff is an Alibaba holding company.
- mrfusion 11y agoWhy spin off anything then?
- mattmaroon 11y agoThe things other than their holdings (Alibaba, Yahoo Japan, cash) have a substantial negative net worth. Literally if they shut everything else down, or spun it off, their market cap would go up by $12bn. This creates friction with investors. They'd like access to the value of those holdings without them being used to fund what they see as a losing wager. That's why Yahoo in worth $12b less than the value of their assets. By spinning off Yahoo, people who don't think it to be a losing bet could invest in it. They think that with time they could turn it around into a sellable asset worth considerably more than if they sold it today. But investors currently don't want to wait for that to happen because they don't like the management team and think they'll just hemorrhage money.
- mintplant 11y agoWhat would a holding company with a narrow focus like that do? Sit on the shares? Make other investments? Liquidate assets and return money to shareholders?
- phamilton 11y agoOne theory is that Alibaba would buy that holding company. That would be an effective stock buyback since shares in a holding company are usually discounted (they are strictly inferior to actual shares since they lack things like voting rights). So Alibaba can decrease total share count by X share and only pay Xshare_price95%.