Yahoo ’s new hedge-fund expertise is paying off — perhaps to the tune of hundreds of millions of dollars.
The company’s 35% stake in Yahoo Japan , worth around $6.5 billion at year-end, had risen over 70% through Friday in local currency terms. Too bad the local currency has had a notably rougher go of it, falling 12% against the dollar thanks to the Bank of Japan’s plan to print yen to fight deflation. In dollar terms, then, Yahoo’s stake in Yahoo Japan is up closer to 50%.
Lucky for Yahoo, board member Daniel Loeb saw it coming. Noting new Prime Minister Shinzo Abe’s zeal to devalue, Mr. Loeb’s hedge fund Third Point put on a short position against the yen last fall according to a recent investor letter. In December and January, Yahoo did the same, entering forward contracts with a notional value of $3.2 billion to hedge the value of its Yahoo Japan stake. It’s not far-fetched to believe Mr. Loeb had something to do with that.
The yen’s subsequent decline means those contracts are likely to have paid off nicely, perhaps as much $380 million through Friday.
Any gains won’t impact the company’s reported earnings, which will be reported Tuesday. Instead they’ll show up as an increase in the cash balance when the contracts close. An extra $380 million would equate to more than 30 cents per share. That’s not bad considering Yahoo is expected to report earnings of just $0.25 per share in the first quarter.
I think it is Mr. Goldman, a very smart CFO who orchestrated this hedging for YHOO. It is definitely a very smart decision. Market will react to this news positively and I think it will reflect to YHOO shares tomorrow. By the way thank you for posting it here, very positively informative.