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Yahoo! Inc. (YHOO) Can Mint $10 billion From Alibaba

Yahoo! Inc. (NASDAQ:YHOO)’s stock is up more than what can be attributed to the rise in Alibaba’s shares which seem to be on jet fuel these days, but that is a story for another day, and another post. Yahoo’s investors might think that Marissa Mayer, Yahoo’s CEO, might have finally pulled a rabbit out of her hat and now the company’s core operations might have started to get some valuation at last. The secret however lies in the three lettered word called Tax, which Marissa Mayer shouldn’t get credit for.

Alibaba Group Holdings Ltd (NYSE:BABA)

CNBC‘s digital senior writer, John Jannarone, spoke about these tax efficiencies that Yahoo! Inc. (NASDAQ:YHOO) could potentially benefit from and which are being valued in the stock price now. He explained the mechanism called Reverse Morris Trust, which will alleviate Yahoo of its tax troubles, as far as its stake in Alibaba and Yahoo Japan is considered.

“[…]I talked to some tax experts and using Reverse Morris Trust is perfectly conceivable. I mean just the kind of stuff that John Malone has done in the past. They would have to, you know, in one model, they would actually have to spin core Yahoo! Inc. (NASDAQ:YHOO) out and then you just have the Yahoo Japan and the Alibaba stake left, and that would trade on its own, and presumably that would kind of reflect the real value because both of those are listed stocks now,” explained Jannarone.

The difference between Yahoo! Inc. (NASDAQ:YHOO) avoiding the tax bill and paying it is a staggering $10 billion, according to Jannarone. Hence, he believes that half of the rise in stock price of Yahoo can be attributed to these possible tax efficeincies, while the other half of course is the result of the wonderful story of Alibaba itself.

Marissa Mayer has been accused of a lot in terms of poor management especially in making acquisitions that really haven’t panned out for Yahoo! Inc. (NASDAQ:YHOO), but if she fails to handle this tax issue appropriately, she will have a hard time finding another job.

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