Bob Peck Reiterates Buy On Yahoo Following WSJ Report On The Aabaco Spin

• Yahoo! Inc. YHOO has seen a 33.26 percent depreciation in its share price, with the shares at their lowest in the year on September 28.
• Robert S. Peck of SunTrust Robinson Humphrey has reiterated a Buy rating on the company, with a price target of $40.
• The Wall Street Journal published an article on December 1, suggesting that Yahoo’s board might reconsider spinning off Aabaco.

Analyst Robert Peck believes that all options should be reassessed by the company, “given the uncertainty around taxes on the spin.”

“Considering other options would also support suggestions in a public letter by shareholder Starboard,” Peck stated, while mentioning that the fate of the senior management would depend on the potential acquirer’s needs.

According to the SunTrust report, there are alternative options that Yahoo’s board could choose from, such as “sell the core outright; spin the core; sell the entire company; do a cash rich tax free split; outright sale of Asian assets; pause the spin until there is more clarity from the IRS; issue tracking stock; or maintain the status quo.”

Peck believes that recent comments, along with the lack of any action taken by the IRS, was a significant negative change, which could have created tax risk that was too high.

According to Peck, one of the easiest options for the company would be to sell the core, “which could garner $6-$8B of net proceeds vs. our estimated GAAP cost basis of ~$6.1B. Even if the tax cost basis is zero, the sale may result in taxes of $2.5-$3.2B.”

If Yahoo does decide to sell the core, Peck expects both private equity and strategic buyers to be interested.