Bob Peck: Yahoo's M&A Premium May 'Dissipate'
In a report published Monday, SunTrust Robinson Humphrey analyst Robert S. Peck maintained a Buy rating on Yahoo! Inc. (NASDAQ: YHOO).
Yahoo mentioned the requirements to complete its Aabaco spin-off, including "receiving regulatory and board approvals, a favorable private letter ruling (PLR) from the IRS, and an opinion from its tax attorneys certifying that the transaction will be treated as tax-free."
Analyst Robert Peck believes that the key concern seems to be that the value of the Alibaba Group Holding Ltd (NYSE: BABA) shares "dwarfs the value of Yahoo Small Business." Moreover, there could be limited visibility into "if and when the IRS may grant a favorable PLR."
Yahoo indicated that even if the spin-off qualified as tax free, if "one or more persons" acquired 50 percent of the shares of YHOO or Aabaco, within two years of the spin-off, it would have "substantial tax implications."
Peck explained that this was important because, with two separately traded stocks - BABA and Aabaco - there was "scope for arbitrage-related overhang especially since investment companies typically trade at a discount to the net asset value (NAV) of the portfolio."
The possibility of the tax-free status being jeopardized, could "limit Yahoo's attractiveness as a potential acquisition target," the SunTrust report said, while adding that investor focus was likely to "shift squarely to the core business, which has been struggling."
Latest Ratings for YHOO
|Oct 2016||MKM Partners||Maintains||Buy|
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