As baba goes, yhoo will follow. Unfortunately it's just too big a part of yhoo's share price. I think the core of yhoo is undervalued, I like Yhoo, but I don't like baba. In light of the news lately on baba I think it's going down and will drag yhoo with it.
After the spinoff that tax liability carries over to Spinco. As an example, suppose $34 B of baba stock is transferred to Spinco. Assume Spinco issues 1 B shares. The market value is likely to be $22 per share because upon a sale of baba stock by Spinco it has to pay $12 B in taxes. The spinoff saves $0 in taxes with one exception. Baba and only baba can acquire Spinco and then liquidate Spinco without tax on those shares. Of corse they have bargaining power and will want a discount.
Interesting that your value, less the built in tax on the Baba shares, is almost exactly where Yhoo stock is trading today. Your 34 +7+7+5= $53, minus taxes of $12 = $43. If you truly believe your numbers then the market has it correct at $43. (Taxes are roughly 35% of the 34 B).
KG, no I'm saying the market price is what it is, $43. And of that $43, $22 of that is the value of after tax Baba shares held by Yhoo, leaving the core, cash and Yhoo Japan valued at the remaining $21. I'm not saying that $21 is right or wrong, just that the $22 comes off to arrive that this number.
That's why I sold in the $42s today, I think $30s are coming. The counterfeit issues are going to be huge from a securities law standpoint. Everyone also thinks there is a $16 B savings of taxes in forming Spinco. There is not one penny of taxes saved in spinning off the Baba stock unless Baba acquires Spinco a couple of years down the road at which time it will require a discount but can then avoid taxes. I calculate that the Spinco removes about $22 to $23 dollars from the present market price. I get that by taking $34 to $35 B of Baba stock and subtracting the built in taxes of $12 to $13 B. So, Cash, the core businesses, and Yahoo Japan are $21 of today's closing price. Is the value of cash, core business and Yahoo Japan worth more than $21 B? I don't know but I think Baba is heading down when the lawsuits come and Yhoo will follow. Just my opinion.
No, the $22 factors in tax that Spinco must pay on a sale of Baba shares. Doesn't take into account tax or no tax at the shareholder level. Again, let me emphasize that if Baba come in and acquires Spinco down the road, it can take back the Baba shares Spinco owns without tax to Spinco............in my opinion. Yahoo does get out of paying the $12 B + tax built in but it passes to Spinco with that one Baba exception. Everyone thinks there has been a "$15 to $16 Billion tax savings" because of the Spinco and that's just not true.......with the Baba acquiring Spinco exception. And they will insist on a discount then so it won't be a total savings.
I sold you some this morning I'll be honest and admit. I think they eventually have a "3" handle. The Baba counterfeit issues are going to be a big deal and will draw lawsuits. Downgrades of Baba have already started citing the counterfeit issue as part of the reason. See Stifel. Good luck, I think you are going to need it.
Kg the prime may be worth more than $21. What I'm trying to get through to everyone is that there is no inherent tax savings on the Baba shares in doing a Spinco. That tax liability carries over and will be discounted from the value of the Baba shares. The prime may be worth much more than $21, I'm not speaking to that. I'm simply saying that based on today's marked price, less the Spinco/Baba share value, $21 remains, rightfully or wrongfully.
kg, I value Spinco at $22 per share ballpark for 1 billion shares. I'm assuming $34 B of baba stock put in it (using today's value) and 35% tax built into that, so roughly 34-12 tax=$22 per share value. The Spinco saves exactly $0 in taxes, unless Baba acquires spinco down the road, then taxes can be saved but it will never be the full amount built in.
Agreed, but if you do that subtract $22 right now and ex-baba you have yhoo trading at $21 per share. Is that fully valued for core, cash and yhoo japan? I don't know but you're correct, that's the rationale and math.
There is NO $15 B tax savings by doing the Spinco. There is exactly $0 tax savings unless Baba, and only Baba acquires Spinco down the road. Then a tax savings of some magnitude can be achieved. If the Spinco received Yhoo's baba shares today at $34 B value, and issued 1 billion shares of Spinco stock, it will trade for about $22 per share ($22 B after $12 B tax which is still built in).
Pebble, what no one is understanding (although I know you do) is that if 384 million shares are put in Spinco (value roughly $34 B as I type this) and if Spinco issues 1 billion shares, those shares will not trade at $38.40. They will trade at more like $22 to take into account the built-in corporate level tax.
Where you are going wrong is the Baba stock value, unless you have subtracted taxes. $34 B minus 35% taxes leaves $22 B and subtracts $12 per share from your calculation. In other words, those shares held inside the company will never give the shareholders that value because of the corporate tax that must be paid.
I beg to differ. It is clear that Baba had discussions with the Chinese government last summer about this. I have not read the S-1 and don't know what they disclosed. If they didn't, however, that is most likely a securities law violation which has it's own consequences. Many will tell you they wouldn't have bought had they known the Chinese govt and Baba had discussed this and Baba his it by not disclosing (again, I don't know what they disclosed). This is a securites litigation attorney's dream.
On the business channel yesterday they said the Chinese government purposely held their ":White Paper" on fraud back until after the IPO so as not to mess it up. That spells trouble for Baba unless that was fully disclosed in their S-1. One can argue it made no difference but I'm telling you the securities litigation attorneys will be lining up for this one. And, if there was not full disclosure they will win.
You read the offering of Baba before the IPO didn't you? If so, what disclosures were there regarding the discussions with the Chinese government last summer? What I heard yesterday indicated that the Chinese government purposely withheld bringing this out until after the IPO so as no to affect it. So, Baba knew and if they didn't properly disclose the attorneys will be lining up and with good cause too. Worries me.
In the aggregate, there is NO tax savings. The $14+ B tax Yhoo would have on the sale of Baba stock is simply transferred to Spin Co. The exact same amount of tax is built in to Spin Co. Again, NO tax savings in this spin off, unless Baba acquires Spin Co down the road, then a savings can be achieved.