But whatever they pay for the baba shares owned by spinco are to the CORPORATION, called Spinco, and subject to about a $10B tax. You as a shareholder will not realized a $34 Billion value, but only a $24 Billion value out of your Spinco stock. I can buy baba shares on the open market at market value, why would I pay more buying from another holder?
OK, it is a tax free spin off, agreed. But after it is over Spinco holds the baba stock and you are a shareholder of Spinco. The baba stock is worth $34 B but there are $10 B of taxes to pay sometime. You, as a shareholder will get $24 when Spinco sells the stock and pays taxes. So, anyone buying your shares will not pay you more than $24. The taxes do not go away, they are just delayed. No different than if yhoo continued to own them and sold them down the road.
If there is a prearranged plan for Baba to purchase Spinco then the spinoff itself will not qualify as a tax free spinoff under Internal Revenue Code Section 355. I believe that is why Baba supposedly was not notified of this beforehand. The requirement is that Yhoo cannot spin the stock off to Spinco "with a view to selling it".
Here's the real math: $34 B in Baba stock, less $10 B in tax nets $24 B which is $24 or $25 dollars of Yhoo's $44 price. That leaves $19 to $20 a share for Yhoo's Japan, cash and core values..........I don't know if that is sufficient but let's say $7 for Japan, $7 for cash, that leaves $5 to $6 for the core business which seems low to me. So, without Baba stock it looks to me like you can buy Yhoo Japan, cash and core for $10 to $20 per share based on the present market price.
Agreed. I keep trying to explain it in simpler and simper terms and I'm getting nowhere. I keep saying I'm giving up then I see something here that's so ridiculous that I can't help myself. Hope you have a great day Pebble, always good to read your input.
The baba stock should represent $24 or $25 of Yhoo's stock price ($34 B value - $10 B taxes, $24 B divided by outstanding Yhoo shares). That leaves roughy $20 based on Friday's closing price for cash, yhoo core and yhoo Japan. Is that enough for those or are they undervalued? I don't know but would like your thoughts.
10 to 20 % is not bad, I'd take it in a minute. On today's values the $34 B of baba stock held by Spinco would produce a roughly $10 B tax if sold at full value of $34 to anyone else, leaving $24 for Spinco shareholders. If Baba (who may be able to eliminate the $10 B tax if they acquire Spinco) pays $30.60 for those $34 shares (a 10% discount), it would not be a sale of the shares from Spinco to baba but baba would trade baba shares for spinco shares (so baba owns 100% of spinco after). In this case the Spinco shareholder gets $30.60 value in Baba stock (while Baba gets a 10% discount). Which is a lot better than getting $24 in value for someone buying stock at 100% of market from Spinco. A 20% discount would give a spinco shareholder $27.20 instead of $24. This only works with Baba so they hold all the bargaining cards for the discount. I assume any other buyer would pay full fair market value to buy the shares directly from Spinco.
Disagree. On Spinco's books it will say 1. BABA investment for $34 B (present value) 2. Provision for taxes on Baba $10 B. Please understand that the tax built in carries over to Spinco.
I'm going to explain this for my last time. Will give an example for clarity. 1. Suppose you own Yhoo stock now at $44 a share and you bought it at $20. If you sell it now you have a $24 gain. 2. Baba shares owned by Yhoo are worth about $34 B and after subtracting the tax basis there is a ballpark $10 B tax that would be owed if Yhoo sold them. Therefore the net asset is about $24 which represents $24 of Yhoo's current share price (assume 1 Billion shares of yahoo outstanding for round numbers......I know it's 960 millionish). 3. When they do the Spinoff, Spinco takes the $34 B baba shares and issues Spinco shares to its shareholders (you). 4. Your $20 basis in my example for your Yhoo stock gets split between your Yhoo shares and your Spinco shares. Let's round it and assume $9 for yhoo stock and $11 for Spinco stock. 5. The baba shares owned by Spinco still have the same tax basis yhoo had in them and still have the same $10 B built in tax. Therefore I think your Spinco shares will be valued at $24. 6. That leaves $20 value for your Yhoo stock (for its cash, Japan, and core business). Hopefully that then rises. 7. No tax is saved in the spinoff. It is "tax free" because Yhoo is allowed to make the transfer "the spinoff" tax free. No tax is avoided. 8. If Spinco sells those shares for $34, they pay $10 tax leaving $24 to distribute to Spinco shareholders if Spinco then goes away. 9. The major exception and maybe the hoped for plan is for Baba to acquire Spinco for Baba shares. You would then hold Baba shares instead of Spinco shares (at the assumed $11 basis in my example) and Spinco would be a a 100% owned subsidiary of Baba. In this instance only (and for no other buyer) Baba may be able to liquidate Spinco and take back its baba shares without any tax. Since no tax is paid will Baba give you $34 in baba shares for your Spinco shares instead of the $24 anyone else would give you? Probably not the whole amount, Baba will want a discount
I can refer you to Section 355 of the Internal Revenue Code. The tax liability built in carries over to Spinco. Spinco holds Baba stock and you hold Spinco Stock. Forget the Baba buyout, that may or may not happen and if it does will be a couple of years down the road. In the meantime, I'm saying that the $34 B of Baba stock held by Spinco will have a tax of $10 B or so built in and the Spinco share price will be discounted by this. Why? Because if Spinco sells the stock it pays tax and only has $24 B left to give to shareholders (which triggers another tax on their Spinco stock, depending upon their individual tax basis). If this was done today, The $44 Yhoo stock price would be split, with approximately $24 to $25 being the price of the Spinco stock you receive and$19 to $20 being the price of the Yhoo stock you retain. Now, does that $19 to $20 cover all of the value inside Yhoo which is cash, Yahoo Japan and their core business? I don't know, but hopefully not. Hopefully the Yhoo stock would rise. I'm just illustrating the mechanics, you tell me if the cash, core, and yhoo japan is worth more or less than $20.
Actually, $$$ seems to be an aphrodisiac and seems to negate looks. Too bad I don't have either, LOL.
Also, you won't be holding Baba stock in your account, you will be holding Spinco stock. Baba stock will be held by Spinco which is why there is a double tax problem in the first place.
Sorry to bust your bubble but the tax doesn't disappear. While held by yhoo the baba stock contribution to yhoo stock value decreases by the tax. The present $34 B in baba value adds about $24 B go yhoo stock price because that's all you can get at the shareholder level. When Spinco gets the stock that part is "tax free". However, it holds the same $34 B in stock subject to the same $10 B tax. Your Spinco stock will have a market value of $24 B. Unlike what the Democrats will tell you, there is no free ride. There is one excpetion, however. If Baba acquires Spinco a couple of years down the road that tax may disappear only because it is the acquirer's stock.
I assumed a federal tax rate of 35 percent and no state taxes. What rate and basis are you using?
If it goes to 130 it adds $15 B value less $5 B tax, or 10 B. Divide by outstanding shares and you add $10.50 or so to yhoo stock value.
Seems to me they have 380 million ballpark shares of baba. Times $89 equals $34 B. I've heard their basis is $7. Subtract that and multiply by .35 and you get $10 B tax. So your $47 becomes$24 making your total $41. Divide 41 by yhoo shares outstanding and you get $42.50. Not sure you considered all of their parts though.