Yahoo! Inc. (NASDAQ:YHOO) could be purchased by Alibaba Group Holding Ltd (NYSE:BABA) for literally nothing, while still offering a premium to shareholders according to some recent calculations by Bloomberg columnist Matt Levine. On Bloomberg’s “This Versus That,” Olivia Sterns reported on that potential scenario.
“Should Alibaba buy Yahoo? According to one calculation, it wouldn’t cost them a penny. […] Bloomberg columnist Matt Levine did some back-of-the-envelope computing. He says Alibaba could offer to buy Yahoo for $7 billion in cash and 384 million in shares. That is an 8% premium to Yahoo’s price. And since Yahoo just happens to have $7 billion in cash and 384 million Alibaba shares, Alibaba would get its investment right back,” Sterns said.
If anything, the seeming absurdity of the whole thing simply points to the fact that Yahoo! Inc. (NASDAQ:YHOO)’s stock is still artifically low at just $39.00. In fact it’s still very much artificially low at the 8% premium of $42.00 that the proposed deal would pay shareholders, as that clearly only accounts for the cash and stake in Alibaba Group Holding Ltd (NYSE:BABA) that Yahoo! Inc. (NASDAQ:YHOO) owns, which are far from their only assets. They also have an $8 billion stake in Yahoo Japan, as well as a business that generates $1 billion in quarterly revenue with modest profits, and multiple assets that could be spun off for more cash.
So while such a deal seems to make sense on a few basic points, for the very same reasons that it seems so absurd, Yahoo! Inc. (NASDAQ:YHOO) shareholders would be unlikely to accept such a paltry premium on a stock that clearly has more inherent value than even that premium.
The Bloomberg article floats other concepts that seem to paint a picture of an Alibaba Group Holding Ltd (NYSE:BABA) takeover as the most logical one, including the fact that even if a company valued Yahoo! Inc. (NASDAQ:YHOO)’s core business including the Yahoo Japan stake at $15 billion, the approximately $13 billion they would have to pay in taxes to sell the Alibaba Group Holding Ltd (NYSE:BABA) shares means they should not be willing to offer much more than what Alibaba Group Holding Ltd (NYSE:BABA) would to purchase the company for nothing (for them).
It stands that the most logical outcome is actually one in which an activist investor takes a large share in Yahoo! Inc. (NASDAQ:YHOO) while its value is depreciated and works to build on that value with their considerable assets, providing much greater long-term value to shareholders than dumping the company for less-than-nothing.
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