By David Benoit
Yahoo Inc., in deciding to spin off its $40 billion stake in
Alibaba Group Holding Ltd., addressed the biggest concern of
investor Starboard Value LP: finding a tax-efficient way to
monetize Yahoo's investment in the Chinese e-commerce giant.
But Yahoo's plan may not completely satisfy the activist
shareholder, who had called for Yahoo to spin off its holdings in
Alibaba and Yahoo Japan together into a separate entity from the
main company, as well as other moves to cut costs and halt
acquisitions.
To be sure, the Alibaba stake was the big fish, and investors
widely cheered Yahoo's announcement Tuesday, sending the stock up
around 7% to $51.43 in after-hours trading.
Starboard's suggestion that Yahoo merge its core business of
Internet properties with rival AOL Corp. has gotten a lot of
headlines, but the Alibaba stake was the activist's big concern.
The stake makes up about $40 billion of Yahoo's $47 billion market
capitalization, so every dollar saved on taxes on the separation of
its Alibaba stake means significant more value to Yahoo
shareholders.
RBC Capital Markets analyst Mark Mahaney earlier had estimated
that for every five percentage points Yahoo saved on the tax bill
for selling Alibaba, it would add $2 billion to its proceeds.
Those numbers meant this wasn't an issue just for Starboard.
Yahoo executives said Tuesday they have spent two years working
with experts to get this plan together.
Chief Financial Officer Kenneth Goldman said the company decided
to not spin off Yahoo Japan at the same time because it could
complicate the transaction.
"We are not saying we won't do something," Mr. Goldman said.
"All we are saying is we want to get this done seamlessly and as
cleanly as we possibly can."
Tax expert Bob Willens said Yahoo made the right move on Tuesday
and that he didn't expect them to have included the Yahoo Japan
stake in the spin.
On acquisitions, which Starboard wants Yahoo to stop, Chief
Executive Marrisa Mayer defended her recent purchases and said she
would be "disciplined" going forward.
And on expenses, the company said it continues to work on its
costs, but didn't lay out specifics. The company's forecast for
adjusted earnings before interest, taxes, depreciation and
amortization implied profit margins would slide steeply from the
year-earlier period.
While Starboard hasn't disclosed its full stake in Yahoo, only
showing a small 0.8% position publicly, it has gained attention in
recent months that can help earn it other shareholders'
support.
Starboard is among the most prolific of activist investors and
has made a splash over the past year as it found itself amid
several high-profile deals. It is currently pushing the combination
of office-supply companies Staples Inc. and Office Depot Inc.,
where it owns large stakes in both. And last year it won a closely
watched fight to unseat the entire 12-person board of Darden
Restaurants Inc., the parent of Olive Garden.
On Monday, it scored a victory in a campaign not quite in the
spotlight, when paper-product producer MeadWestvaco Corp. agreed to
merge with rival Rock-Tenn Co. in a deal that would create a $16
billion company. Starboard has a 6.1% stake in MeadWestvaco, whose
stock rose 14% on the news Monday.
Write to David Benoit at david.benoit@wsj.com
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