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business newsCould Alibaba IPO Mean a Yahoo Takeover?
A Chinese Internet company's IPO announcment may signal a takeover, unless Yahoo ends up botching a sale again as it did with Microsoft in 2008.
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With last night's news that Chinese Internet company Alibaba was going to IPO as a whole instead of as separate companies, we may have found our answer.
According to Eric Jackson of Ironfire Capital, the IPO could be a precursor for Alibaba, run by CEO Jack Ma, to eventually take over the Sunnyvale, Calif.-based Internet giant.
This idea has been mentioned before, first by Loeb in his letter to the company filed with the SEC, and again at the Delivering Alpha conference a few weeks ago. Loeb is especially bullish on Alibaba, and hinted that Ma could potentially be part of a transaction to take Yahoo private. The problem has been, as Loeb aptly said, "No one wants to work with these clowns on the board."
It has long been known that Ma has tried to get his Alipay stake out from Yahoo -- he almost did it without Yahoo knowing -- but the parties involved eventually came to an agreement.
Jackson speculated that an Alibaba Group IPO would make the company worth somewhere between $40 and $60 billion. That is two to three times more than Yahoo itself is worth, and Yahoo owns a 39% stake in the company. That means Yahoo's stake could be worth anywhere between $15.6 billion and $23.4 billion. Essentially, that means Yahoo is trading for almost nothing, and if Alibaba does IPO as a whole, this could be the company to take it over. Loeb said that he thinks Yahoo is worth anywhere between $19 and $31 per share, and a higher valuation on the Alibaba IPO would put the Yahoo share price closer to the higher end of Loeb's range.
Since Yahoo turned down the $33-per-share offer from Microsoft (MSFT) back in 2008, it's been obvious that a change in management was necessary. The board of directors has been described as a joke, and Loeb has tried to work to get them to do something. The company finally acknowledged it was up for sale, but the actions of Chairman Roy Bostock have made things all the more difficult.
With the recent news that Alibaba is going to IPO as a whole, it could mean that the company -- not Silver Lake Partners, Microsoft, or any of the other potential suitor -- is the most likely to take over Yahoo and extract the value from it.
ACTION ITEMS:
Bullish:
Traders who believe that Yahoo eventually gets taken over might want to consider the following trades:
- Traders may want to consider going long Yahoo, either with the common stock, or long-dated calls.
Traders who believe that Yahoo will bungle a sale again may consider an alternate position:
- The board, led by Bostock and co-founder Jerry Yang, already messed up one bid from Microsoft. The board is still mostly the same from back then. If you believe the board screws this up, consider shorting the name.
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Twitter: @Benzinga
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