Bob Peck Ponders Yahoo's Future And The Fate Of Its Alibaba Shares

There is lack of clarity regarding how and when Yahoo! Inc. YHOO would be able to monetize shares of Alibaba Group Holding Ltd BABA, SunTrust Robinson Humphrey’s Robert S. Peck said in a report. He maintained a Neutral rating on Yahoo, with a price target of $42.

What’s Next?

Following the close of the core sale, there are a number of steps the company can take, including returning cash; selling Yahoo Japan, monetizing IP and other assets as well as undertaking a tax efficient process for Yahoo's stake in Alibaba.
“While all of these may happen and appear to create a compelling risk / reward, we think there is a higher risk & complexity, which weighs on the NT reward upside,” analyst Peck commented.

Fate Of Alibaba Shares

Following the completion of the core sale, Yahoo RemainCo would own 384 million Alibaba shares. Peck pointed out, however, that Yahoo RemainCo cannot sell this stake unless it is “at a significant discount to NAV” and additionally pay capital gains tax.

“In short, RemainCo may be stuck with a ~$40 billion asset that it may not be able to monetize in the public market, and has limited leverage with the only possible buyer, Alibaba. The onus, thus, would squarely be on RemainCo to come up with a tax-efficient solution which Alibaba could consider attractive,” the analyst wrote.

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