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Yahoo investors Bet on a Stub After its Core Business Sale to Verizon

Yahoo investors Bet on a Stub After its Core Business Sale to Verizon
After Monday's deal to sell Yahoo’s core internet assets to Verizon Communications Inc. the former’s shareholders may be left betting on how quickly, if at all, the former web pioneer can cash in on its multi-billion dollar stakes in two Asian peers.
Its 35.5 percent stake in joint venture Yahoo Japan Corp and 15 percent stake in Chinese online commerce company Alibaba Group Holdings Ltd comprise mostly of the $36.4 billion market value of Yahoo. These stakes were not included in Yahoo's deal with Verizon.
While Yahoo has been looking for years without success for a way to make money from the investments without incurring a huge tax bill, investors will be hoping for a quick sale of these stakes. There were no comments from Yahoo on potential scenarios.
Earlier in the year, Yahoo’s plan to spin off its stake in Alibaba to Yahoo shareholders were thwarted by the U.S. Internal Revenue Service which had said that it would not provide assurances it could be carried out on a tax-free basis. The latest deal with Verizon included its advertising tools and internet assets such as search and email only.
Yahoo Japan and Alibaba buying back these stakes from Yahoo in some way that saves on taxes is what many investors are now rooting and hoping for. According to Eric Jackson, managing director at SpringOwl Asset Management LLC, which owns Yahoo shares, even though they would likely buy back these shares at a discount, Yahoo investors would benefit.

"Hopefully by the end of this year, we have some sort of transaction, preferably with Alibaba buying its stake back and Yahoo Japan buying its stake back," Jackson said.
Due to the fact that the stakes have appreciated greatly in value, but it is unclear how much, such a deal would likely involve some tax.
Before making any decision on the Alibaba stake, which is worth more than $30 billion, Yahoo Japan stake, worth more than $8 billion on paper, wouolld be the forst that the once tech giant would look to divest, argue bankers and analysts.
The internet company launched a joint venture with Japan's SoftBank Group Corp way back in 1996 and Yahoo's shares in Yahoo Japan are from that date.
According to corporate tax law consultant Robert Willens, Yahoo could swap its Yahoo Japan shares for cash and assets from Yahoo Japan in a "cash-rich split off" with Yahoo Japan to minimize its tax liabilities.
According to Willens, that would take some effort as a new subsidiary has to be created, contribute cash and an operating business by Yahoo Japan. Willens added that with at least one-third of the value coming from the operating business, cash can only make up two-thirds of the new company's value.
Following this, Yahoo can be given this company in exchange for Yahoo's shares in Yahoo Japan.
Rather than dealing with Alibaba, it prefers to deal with Yahoo Japan first, Yahoo itself hinted on Monday. The company views the stakes in Yahoo Japan and Alibaba differently, said Yahoo board member Tom McInerney, who is chairman of its strategic review committee, said on a conference call with analysts.

Christopher J. Mitchell

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