What happens next to the newly named Altaba after the departure of Yahoo directors, Marissa Mayer and David Filo? Altaba itself gives a description of things to come: a company that is an ALTernative to AlibABA. Ahead are more asset sales, so that all that remains is Alibaba stock.
After the Verizon sale, the remaining board – Tor Braham, Eric Brandt, Catherine Friedman, Thomas McInerney, and Jeffrey Smith – will have the talent for turning the old Yahoo into a closed-end investment fund. Getting there will still require work and financial expertise.
Inside the old Yahoo is stock with unrealized gain, patents, and cash. The end game is removing these assets so only the Alibaba shares remain. Then the Alibaba shares can either to sold to Alibaba or transferred to Alibaba in a merger. Merging with Alibaba would be a tax-free method for getting the shares out of Altaba.
Jeffrey Smith’s Starboard Value LP owns 12 million Yahoo shares that are worth approximately $550 million. As board member and investor, Mr. Smith has very incentive to maximize the value of Altaba shares. So if Mr. Smith’s real goal is not a closed-end investment fund, but something that is an alternative to owning actual Alibaba stock, then the other assets must go.
Hopefully Yahoo will be successful with the sale of its online assets to Verizon for $4.8 billion. The next step will then be returning the cash to shareholders through dividends or stock repurchases. Remaining board members should be astute enough to return cash through buying back stock since it is more tax efficient for shareholders than dividends.
Eventually the patents will need to be sold along with the Yahoo Japan stock. But the Yahoo board does not intend to sell the Yahoo Japan, which at first makes sense. The Yahoo Japan shares were purchased for $2 billion and are currently worth around $16 billion. So after selling the Yahoo Japan shares and paying the tax bill, only $10 billion of cash would available for shareholders.
It does make sense to sell the Yahoo Japan shares to achieve an ALTernative to AlibABA. In fact, in the same proxy statement, the board said it …. currently believes that it is more likely that capital may be returned from a sale of Yahoo Japan Shares than Alibaba Shares. Remember selling either the Yahoo Japan or Alibaba shares would result in large tax bills, but the goal seems to be leaving Altaba will only Alibaba shares.
Yahoo’s market value is still less than the sum its underlying assets. Remaining board members, especially Mr. Smith, will continue to do anything to maximize shareholder value; something Marissa Mayer and David Filo were not able to do.