4 Reasons SunTust's Bob Peck Downgraded Yahoo

Bob Peck of SunTrust Robinson Humphrey expects Yahoo! Inc. YHOO to make a decision on the core sale around July 18. He downgraded the rating on the company from Buy to Neutral, while lowering the price target from $44 to $42.

4 Reasons To Sell

The analyst expects a positive results from the sale, although it could also be a catalyst for "sell the news."

Related Link: 6 Reasons Yahoo Shares Offer A More Compelling Risk/Reward

Peck believes there are four reasons for this:

• 1. The core sale is widely expected, but could “higher contingencies given recent disclosures.”
• 2. The process of liquidating investments in Yahoo! Japan and Alibaba Group Holding Ltd BABA is expected to be complex and “convoluted.”
• 3. The “hook” nature of Alibaba’s stock could bring down the takeout premium
• 4. It would take time to materialize, if it does materialize at all.

3-Step Process

Peck believes the sale of the core business would be a three-step process, where the first step includes the two auctions that Yahoo is running in parallel, including the core sale and the sale of the Excalibur patent portfolio.

The analyst expect the core sale to generate about $6 billion, across one or more transactions. “However given recent contract liabilities news, the price could be pressured and carry many contingencies,” Peck stated.

Step two would be to distribute or sell share of Yahoo! Japan, where Peck believes that SoftBank would be the “natural buyer,” although it is unclear whether SoftBank is interested in buying Yahoo! Japan.

Step three could be that Alibaba steps in to buy RemainCo with Yahoo! Japan shares. “However, if Step 2 occurs, we could see Alibaba wanting to buy back its shares,” Peck explained.