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It's interesting that the Alibaba holdings are more of a liability than an asset in this situation. YHOO is essentially a proxy for BABA, nothing Yahoo does af

It's interesting that the Alibaba holdings are more of a liability than an asset in this situation. YHOO is essentially a proxy for BABA, nothing Yahoo does affects the stock price in any meaningful way, and the value of the core business is effectively negative, if you subtract the post-tax value of Alibaba, Yahoo Japan, and cash on hand. But the value of a declining business with billions in revenue each year must be positive. So selling off Alibaba and Yahoo Japan is the best bet, except you have investors demanding that it be done tax-free, so you can't just sell them, even though the decline of the value of Alibaba during the time it takes to do this process might be larger than the taxes. If Alibaba keeps going down in value, selling it now gives you more money than selling it tax-free in the future. But that might still get you sued by the shareholders, which is stupid. A reverse spin-off, i.e. selling the core business, has some funny implications as well. Many employees are on work visas, which are tied to a specific employer at a specific address. If this changes, all of those visas become invalid. Obviously, selling the assets and shrinking the market cap, would make it much easier for someone to buy Yahoo.

Riod 11y ago
Why the assumption that BABA keeps declining in value? Shareholders probably have more faith in BABA than Yahoo core. Would make sense to sell core yahoo and keep Yahoo Japan and BABA under the Yahoo ticker. Reason being the tax from selling the latter two affects your PV more if you believe they will keep growing.
- yeukhon 11y ago
  It won't stay at its peak, very normal for most companies after IPO. BABA will continue to do okay in China as the ecommerce market is huge. The challenge BABA faces is quality rather than quantity and I don't think Alibaba is addressing it well. But I believe the real problem is Yahoo being a media/technology company, Yahoo must improve its core business in order to be sustainable in the long run. They can sell BABA now, walk away, and reorganize the entire company from scratch. I am not saying people are greedy, but when you really have the chance to start from scratch do it. But I don't think anyone has any idea where Yahoo should fit. Content? Search? Where does Yahoo stand? This is why the shareholders are not willing to sell anything because they themselves are clueless.
  - Riod 11y ago
    Quality? In what way? Yea agreed. Yahoo is a bit of a head scratcher. They don't seem to be worldclass at anything in particular.
- henrikschroder 11y ago
  If BABA keeps declining in value, you'll reach a point where in hindsight it'll be obvious that Yahoo should have just sold the holdings, taken the tax hit, and distributed the money to shareholders. And that's a crap situation to be in, because you'll have armchair pundits calling out the company for not doing it. If BABA stays in value or goes up, then selling off the core is the best option, except it's hard, it has all sorts of complications, it takes a lot more time than someone just buying the entire company, which makes it harder to find buyers, and you might not get as good as price as you could if you sold the entire thing. Either way, you are making a huge bet on the future value of BABA, and you're damned if you do and damned if you don't.
  - Riod 11y ago
    Yessir. Agreed
sharkweek 11y ago
You know how I know I'll never be a CEO of a huge company like this? Because I read what you just wrote and thought, "this doesn't sound like something that 1) I could ever solve 2) it just doesn't sound remotely fun to try and figure all this stuff out"
- xyzzy4 11y ago
  I think some people would enjoy it simply because they like being in positions of power and feeling important.
- charlesdm 11y ago
  I can see how that could be fun if you like big picture thinking.
  - lesdeuxmagots 11y ago
    It's only fun in theory. What's not fun is when you have to answer to investors, which give no shits about you or your employees, and only dollars, or what they perceive will increase their returns. Often, this is aligned with what management wants to do and what the employees want to do, but in a situation like this, the incentives can be heavily misaligned.
    - NotSammyHagar 11y ago
      I think like most people in leadership positions at big companies, they can coast along on the success of the big company but they think it's all them. See also nfl coaches. When I was at google, she was such an ass to people. Many were glad to see her leave. I wish more leaders had humility about their success. She's got her 300 million, she'll be okay, but I doubt she will get an improved character out of this.
- gnaritas 11y ago
  Would a 35million dollar salary change your mind?
charlesdm 11y ago
> If Alibaba keeps going down in value, selling it now gives you more money than selling it tax-free in the future. You can't possibly predict that, and thus, a tax free spin off is the only sane option. Also, you can't just dump 15% of BABA stock and expect to get the current market share price. Its value would probably decline by 30-40%. If they succeed and Alibaba buys back that 15% stake (even at a discount) they will have returned an additional $5-7bn to shareholders by structuring it like this. > But the value of a declining business with billions in revenue each year must be positive. Sure, it is - it's worth a few billion. Their current market cap is $27bn and own they 15% of Alibaba (worth ~$24bn pretax).
- henrikschroder 11y ago
  > Sure, it is - it's worth a few billion. Yahoo market cap: $27.5bn Alibaba post-tax: $17.5bn Y! Japan post-tax: $6bn Net cash: $5bn Market value of core Yahoo: -$1bn. Ouch! If Yahoo didn't have those assets, the market cap would fairly reflect the value of a slowly declining multi-billion-dollar business, and it would be perfectly positioned for a takeover by private equity, who would proceed to milk the company dry, delivering tremendous shareholder value for everyone... But since the uncertainty around the stakes are so high, you get the above weird valuation of the core, which makes selling off the core very difficult. The market doesn't "know" what a fair price for it is.
  - TheOtherHobbes 11y ago
    I don't think that's the true core value - more a statement about the way that Yahoo's current business model (if you can call it that) has a big net negative value. Currently Y! is literally less than the sum of its parts. There are a lot of reasons for that, but the absence of a "Where is this company going to be five years from now?" plan has to be a big element. Investors barely have confidence in the present, never mind the future - mostly because Mayer has completely failed to reassure them.
    - dragonwriter 11y ago
      > Currently Y! is literally less than the sum of its parts. Or, at least, its market cap is worth less than the market cap of things it owns times the share it owns of them, meaning that (assuming the consistent utility of market-cap-based-valuation) that it is either worth less than the sum of its parts, or that some of its other parts have negative net value. The latter offends lots of people's intuitions about what those parts should be worth, but those people don't seem to be putting their money where there mouth is and buying up the undervalued Yahoo! stock, so maybe either simplistic market cap to market cap based value analysis is wrong, or those other parts really do have negative value, or both.

Riod 11y ago

Why the assumption that BABA keeps declining in value? Shareholders probably have more faith in BABA than Yahoo core. Would make sense to sell core yahoo and keep Yahoo Japan and BABA under the Yahoo ticker. Reason being the tax from selling the latter two affects your PV more if you believe they will keep growing.

yeukhon 11y ago
It won't stay at its peak, very normal for most companies after IPO. BABA will continue to do okay in China as the ecommerce market is huge. The challenge BABA faces is quality rather than quantity and I don't think Alibaba is addressing it well. But I believe the real problem is Yahoo being a media/technology company, Yahoo must improve its core business in order to be sustainable in the long run. They can sell BABA now, walk away, and reorganize the entire company from scratch. I am not saying people are greedy, but when you really have the chance to start from scratch do it. But I don't think anyone has any idea where Yahoo should fit. Content? Search? Where does Yahoo stand? This is why the shareholders are not willing to sell anything because they themselves are clueless.
- Riod 11y ago
  Quality? In what way? Yea agreed. Yahoo is a bit of a head scratcher. They don't seem to be worldclass at anything in particular.
henrikschroder 11y ago
If BABA keeps declining in value, you'll reach a point where in hindsight it'll be obvious that Yahoo should have just sold the holdings, taken the tax hit, and distributed the money to shareholders. And that's a crap situation to be in, because you'll have armchair pundits calling out the company for not doing it. If BABA stays in value or goes up, then selling off the core is the best option, except it's hard, it has all sorts of complications, it takes a lot more time than someone just buying the entire company, which makes it harder to find buyers, and you might not get as good as price as you could if you sold the entire thing. Either way, you are making a huge bet on the future value of BABA, and you're damned if you do and damned if you don't.
- Riod 11y ago
  Yessir. Agreed

sharkweek 11y ago

You know how I know I'll never be a CEO of a huge company like this? Because I read what you just wrote and thought, "this doesn't sound like something that 1) I could ever solve 2) it just doesn't sound remotely fun to try and figure all this stuff out"

xyzzy4 11y ago
I think some people would enjoy it simply because they like being in positions of power and feeling important.
charlesdm 11y ago
I can see how that could be fun if you like big picture thinking.
- lesdeuxmagots 11y ago
  It's only fun in theory. What's not fun is when you have to answer to investors, which give no shits about you or your employees, and only dollars, or what they perceive will increase their returns. Often, this is aligned with what management wants to do and what the employees want to do, but in a situation like this, the incentives can be heavily misaligned.
  - NotSammyHagar 11y ago
    I think like most people in leadership positions at big companies, they can coast along on the success of the big company but they think it's all them. See also nfl coaches. When I was at google, she was such an ass to people. Many were glad to see her leave. I wish more leaders had humility about their success. She's got her 300 million, she'll be okay, but I doubt she will get an improved character out of this.
gnaritas 11y ago
Would a 35million dollar salary change your mind?

charlesdm 11y ago

> If Alibaba keeps going down in value, selling it now gives you more money than selling it tax-free in the future. You can't possibly predict that, and thus, a tax free spin off is the only sane option. Also, you can't just dump 15% of BABA stock and expect to get the current market share price. Its value would probably decline by 30-40%. If they succeed and Alibaba buys back that 15% stake (even at a discount) they will have returned an additional $5-7bn to shareholders by structuring it like this. > But the value of a declining business with billions in revenue each year must be positive. Sure, it is - it's worth a few billion. Their current market cap is $27bn and own they 15% of Alibaba (worth ~$24bn pretax).

henrikschroder 11y ago
> Sure, it is - it's worth a few billion. Yahoo market cap: $27.5bn Alibaba post-tax: $17.5bn Y! Japan post-tax: $6bn Net cash: $5bn Market value of core Yahoo: -$1bn. Ouch! If Yahoo didn't have those assets, the market cap would fairly reflect the value of a slowly declining multi-billion-dollar business, and it would be perfectly positioned for a takeover by private equity, who would proceed to milk the company dry, delivering tremendous shareholder value for everyone... But since the uncertainty around the stakes are so high, you get the above weird valuation of the core, which makes selling off the core very difficult. The market doesn't "know" what a fair price for it is.
- TheOtherHobbes 11y ago
  I don't think that's the true core value - more a statement about the way that Yahoo's current business model (if you can call it that) has a big net negative value. Currently Y! is literally less than the sum of its parts. There are a lot of reasons for that, but the absence of a "Where is this company going to be five years from now?" plan has to be a big element. Investors barely have confidence in the present, never mind the future - mostly because Mayer has completely failed to reassure them.
  - dragonwriter 11y ago
    > Currently Y! is literally less than the sum of its parts. Or, at least, its market cap is worth less than the market cap of things it owns times the share it owns of them, meaning that (assuming the consistent utility of market-cap-based-valuation) that it is either worth less than the sum of its parts, or that some of its other parts have negative net value. The latter offends lots of people's intuitions about what those parts should be worth, but those people don't seem to be putting their money where there mouth is and buying up the undervalued Yahoo! stock, so maybe either simplistic market cap to market cap based value analysis is wrong, or those other parts really do have negative value, or both.