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Bank Of America Weighs In On Yahoo, Alibaba As IPO Nears

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In a report released Thursday, Bank of America analysts Justin Post and Joyce Tran reviewed Yahoo's (NASDAQ: YHOO) evaluation amid the upcoming Alibaba (BABA) IPO.

An upside and a downside comparison was made on Yahoo's valuation.

The Bank of America note said Potential pros can be displayed if Alibaba were to acquire Yahoo in a cash or stock deal, potentially influencing capital gains taxes to be avoided. Bank of America analysts estimate potential tax savings value, if Alibaba acquires Yahoo before the company's IPO at $12 billion (or $12 per share).

Bank of America analysts see the potential of Alibaba's market valuation creating an upside surprise compared to its estimates of $177 billion, influencing value for Yahoo stock going higher, in effect revising Bank of America's $39 price objective.

The downside risk in Bank of America's thesis is the chance of zero tax savings. Bank of America's tax consultants reviewed the case of Yahoo selling Alibaba shares in an IPO or secondary offering; in this case, it would be highly unlikely for Yahoo to avoid capital gains taxes on Alibaba. Deal speculation on Yahoo's holding its stake in Alibaba could fade away over time, due to Yahoo's stake in Alibaba is locked up for one year before its IPO.

Bank of America noted risk of Yahoo shareholders possible selling shares to buy Alibaba for a pure-play on Alibaba, creating post Alibaba IPO selling pressure due to Yahoo's stock buybacks,. The company stated that at least 50 percent of IPO proceeds will be used for its repurchase program, which could create investor's bullish optimism on Alibaba.

Yahoo owns 524 million shares of Alibaba (22.5 percent) and recently announced that the company will be selling nearly 140 million shares (six percent) of Alibaba into the IPO and retaining a total of 16.5 percent ownership in Alibaba before its IPO.

 

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