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 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

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."