Are there any advantages for Yahoo! of a spinoff over a sale of the web business units? I assume Yahoo! would retain some ownership shares in a spinoff company, which could be valuable if they Yahoo! was bullish on the new company. In that case, though, why would they spin off those units?
Off topic but that leaning exlamation point made me feel a huge boost of nostalgia. Probably for the mid to late nineties when Yahoo was pretty awesome.
A year ago, Yahoo announced that they would spin off their stake in Alibaba (around 30B). Somewhere along the last year, it was determined that the spinoff might incur a huge tax bill, costing shareholders a few billion dollars. Last month, they decided to do a reverse spin-off. Instead of spinning off Alibaba, spin off everything else (which is only worth a few billion). The tax bill on 4B is much less than the tax bill on 30B.
In other words, all that would be left after the spinoff is an Alibaba holding company.
The things other than their holdings (Alibaba, Yahoo Japan, cash) have a substantial negative net worth. Literally if they shut everything else down, or spun it off, their market cap would go up by $12bn.
This creates friction with investors. They'd like access to the value of those holdings without them being used to fund what they see as a losing wager. That's why Yahoo in worth $12b less than the value of their assets.
By spinning off Yahoo, people who don't think it to be a losing bet could invest in it. They think that with time they could turn it around into a sellable asset worth considerably more than if they sold it today. But investors currently don't want to wait for that to happen because they don't like the management team and think they'll just hemorrhage money.
What would a holding company with a narrow focus like that do? Sit on the shares? Make other investments? Liquidate assets and return money to shareholders?
One theory is that Alibaba would buy that holding company. That would be an effective stock buyback since shares in a holding company are usually discounted (they are strictly inferior to actual shares since they lack things like voting rights). So Alibaba can decrease total share count by X share and only pay Xshare_price95%.
The numbers here always amaze me. Would they be better off keeping Yahoo going than, say, investing $20bn into the next generation of startups?
Just imagine a $20bn seed fund and the type of companies that could be funded. Startups in more difficult industries that need a larger upfront investment (genetics, pharmaceuticals, aerospace, etc.)
I feel like Yahoo would be best broken up into lots of tiny pieces which would have the opportunity to become little independent start-ups in their own right, taking whatever "bit" they have and turning into a new concept and building a business around it. They need that injection of innovation and modern startup mentality which probably won't happen in a monolithic behemoth where everything is lumped together.
Sell off the parts of Yahoo still worth something to give each team some startup cash, and let them raise more from investors? I am sure many would also just be bought outright by other companies for the talent alone.
As all of them would now have to pay for legal, accounting, recruiting, HR, customer support and other services that used to be shared as well as negotiate their own real estate leases, server purchases and data center leases, how many of these tiny pieces would generate enough cash flow to sustain themselves a few years down the road?
If the business is ad-supported, a bigger player can negotiate better rates for their combined inventory, a smaller player is relegated to AdSense and similar.
> As all of them would now have to pay for legal, accounting, recruiting, HR, customer support and other services
True, but I guess this is true for all startups. And the reality is, for a bunch of guys and gals working out of a garage you don't need a lot of that stuff until you are actually successful.
> how many of these tiny pieces would generate enough cash flow to sustain themselves a few years down the road
Not many, and I guess that is the point. You are giving the worthy parts of Yahoo the freedom to succeed, while letting the dead wood go to dust. It seems the alternative is watching the whole thing die a slow death and there will be nothing left at all (apart from the not-really-Yahoo Alibaba and Yahoo Japan).
Because if you spin off say, Mail, News and Games from Yahoo, all have depended on the yahoo.com domain name for their SEO and traffic.
Could news.yahoo.com do well if it lost all its rankings because its domain name was kept by the remains of the main company? What about Yahoo Mail? It's likely one of the more popular parts of their business, but if it was spun off, then everyone would likely lose their email address. Not great for existing users.
Flickr and Tumblr could easily return to being independent though.
The "smart money" wants them to sell their real estate and return the cash to shareholders who can then, if they so choose, invest in real estate directly rather than through a convoluted corporate holding company that was never designed to be a real estate company.
A company should do what it can to make a return for its shareholders. If it finds that its original mission is failing, what's wrong with switching to something else that they've found, maybe by accident, is highly profitable?
If the shareholders don't like it, they can sell their shares and try investing in another crappy internet portal that burns money. Shareholders have no right to complain about their companies' actions AFAIC; if you don't like the way the company is run, sell your shares. You're not the owner of the company when you own 1-millionth or whatever of it. The only people who have a right to push for a change in the corporate direction are the members of the board of directors. Everyone else is nothing more than in investor, basically just a gambler.
> if you don't like the way the company is run, sell your shares.
The activist investors in question believe that changing strategies will return more capital back to them than they can get by selling their shares today.
> when you own 1-millionth or whatever of it
Starboard owns closer to 1/100th than 1/1,000,000th of Yahoo.
> You're not the owner of the company when you own 1-millionth or whatever of it.
There is no single "owner" of a public company. Everyone who holds voting shares holds a share of ownership. Anyone is free to try to convince anyone else to vote their shares a certain way. Ultimately the board serves at the pleasure of the shareholders collectively, and that is exactly how activist investors like Starboard work.
No, there's no single owner, however in most companies there's a small class of people who own a lot of the stock and have a huge amount of power, while most shareholders have very little stock (esp. if it's owned as part of a mutual fund) and no real power.
So yeah, if you have enough shares that the board really wants to listen to you, complain away. For most people though, that's a waste of time. Just sell your shares and move on. The board doesn't give a rat's ass about some people who just own shares through their retirement funds, only what really large investors want, as those people have the power to affect their position on the board.
"Shareholders have no right to complain about their companies' actions"
Uh...it's the complete opposite. First, anyone has the right to complain about anything. But shareholders (i.e., owners) are practically obligated to weigh in on the actions of things they own.
Much like what happened with lots of German companies, which had to sell off their real estate, then rent it back at higher costs, and then went bankrupt – while the investors had already sold off everything worth from the company.
This concept of US-Investors is known as "Cricket Plague Investor" (Heuschreckeninvestor) in Germany.
If those companies couldn't survive renting real estate at market rates, they deserved to die as they weren't using their capital as well as other businesses.
The new investors used the real estate only to sue the first company to get money – after the first company went bankrupt, no one rented the real estate again, it’s empty now.
It wasn’t "at market rates", it was far above that, and just intended to bleed out every piece of property from the company and transfer it as profit to the investors.
People will pay for Flickr Pro accounts (Flickr was profitable due to this). People aren't going to pay for Tumblr.
EDIT: I've previously said on HN that I'd like to buy Flickr and roll it into a benefit corp/non-profit sort of deal. I firmly believe that Pro users can pay enough that Flickr can self-sustain itself.
I said this in my other comment [1] too that they should spin off both.
Integrate with Tumblr has a good upshot - browsing Flickr picture is kind of dull. If you have a Medium-like site for photo publish, you can create a web photo magainze!
The one - on Tumblr is all the custom themes. IDKY, but Medium just looks better for readers. Yahoo needs to make Tumblr for high quality posts, but Tumblt started out with teens, mostly asks, gifts and quotes. Now really just about reblogging every day and like I said I keep seeing the same stuff reblogged every day.
The stated intention of the messaging from the "activist" investors is to persuade a majority of shareholders that their vision for the company is better than the current leadership's, thus forcing change at the company.
The effect of the messaging is usually that the company implements some of the changes themselves to avoid being forced or ousted, which also usually leads to short-term stock gains, which is what the activist investor was after in the first place.
I have an extremely paltry amount of Yahoo stock (5 shares) that I bought on a whim in 2014. This is the only investing I've done outside of my company 401k. I know absolutely nothing about investing. What the heck should I do with it at this point?
Speak to a professional, not randos on the internet, if it really worries you.
Its current worth is about 5*$30.63 ~= Not much.
So best advice is to sit on it and do nothing... and when you're bored, go to www.investopedia.com and read up about how stock markets work - it will come in useful in future!
5 shares? Probably nothing, just let it ride. You'd probably drop $150 on a dinner or two.
If you had 5000 shares I'd probably say the same thing -- this was already priced into the stock and almost all of the value in the stock is the Alibaba holding.
If the stock is up from when you bought it, maybe I'd say take some profit off the table, but honestly a sale of Yahoo's web business would probably increase the value, but who knows.
I personally don't invest in tech stocks because they're too volatile. :)
Or skip that and just stick to index funds in the future. Also, check your 401K and make sure the expense ratio is low compared to something like a Vanguard index fund. If not, make some noise.
53 comments
[ 7.6 ms ] story [ 237 ms ] threadA year ago, Yahoo announced that they would spin off their stake in Alibaba (around 30B). Somewhere along the last year, it was determined that the spinoff might incur a huge tax bill, costing shareholders a few billion dollars. Last month, they decided to do a reverse spin-off. Instead of spinning off Alibaba, spin off everything else (which is only worth a few billion). The tax bill on 4B is much less than the tax bill on 30B.
In other words, all that would be left after the spinoff is an Alibaba holding company.
This creates friction with investors. They'd like access to the value of those holdings without them being used to fund what they see as a losing wager. That's why Yahoo in worth $12b less than the value of their assets.
By spinning off Yahoo, people who don't think it to be a losing bet could invest in it. They think that with time they could turn it around into a sellable asset worth considerably more than if they sold it today. But investors currently don't want to wait for that to happen because they don't like the management team and think they'll just hemorrhage money.
Just imagine a $20bn seed fund and the type of companies that could be funded. Startups in more difficult industries that need a larger upfront investment (genetics, pharmaceuticals, aerospace, etc.)
If the business is ad-supported, a bigger player can negotiate better rates for their combined inventory, a smaller player is relegated to AdSense and similar.
True, but I guess this is true for all startups. And the reality is, for a bunch of guys and gals working out of a garage you don't need a lot of that stuff until you are actually successful.
> how many of these tiny pieces would generate enough cash flow to sustain themselves a few years down the road
Not many, and I guess that is the point. You are giving the worthy parts of Yahoo the freedom to succeed, while letting the dead wood go to dust. It seems the alternative is watching the whole thing die a slow death and there will be nothing left at all (apart from the not-really-Yahoo Alibaba and Yahoo Japan).
Because if you spin off say, Mail, News and Games from Yahoo, all have depended on the yahoo.com domain name for their SEO and traffic.
Could news.yahoo.com do well if it lost all its rankings because its domain name was kept by the remains of the main company? What about Yahoo Mail? It's likely one of the more popular parts of their business, but if it was spun off, then everyone would likely lose their email address. Not great for existing users.
Flickr and Tumblr could easily return to being independent though.
If the shareholders don't like it, they can sell their shares and try investing in another crappy internet portal that burns money. Shareholders have no right to complain about their companies' actions AFAIC; if you don't like the way the company is run, sell your shares. You're not the owner of the company when you own 1-millionth or whatever of it. The only people who have a right to push for a change in the corporate direction are the members of the board of directors. Everyone else is nothing more than in investor, basically just a gambler.
The activist investors in question believe that changing strategies will return more capital back to them than they can get by selling their shares today.
> when you own 1-millionth or whatever of it
Starboard owns closer to 1/100th than 1/1,000,000th of Yahoo.
There is no single "owner" of a public company. Everyone who holds voting shares holds a share of ownership. Anyone is free to try to convince anyone else to vote their shares a certain way. Ultimately the board serves at the pleasure of the shareholders collectively, and that is exactly how activist investors like Starboard work.
So yeah, if you have enough shares that the board really wants to listen to you, complain away. For most people though, that's a waste of time. Just sell your shares and move on. The board doesn't give a rat's ass about some people who just own shares through their retirement funds, only what really large investors want, as those people have the power to affect their position on the board.
Uh...it's the complete opposite. First, anyone has the right to complain about anything. But shareholders (i.e., owners) are practically obligated to weigh in on the actions of things they own.
Maybe, but the rest of us have the right to make fun of those people for tilting at windmills.
This concept of US-Investors is known as "Cricket Plague Investor" (Heuschreckeninvestor) in Germany.
It wasn’t "at market rates", it was far above that, and just intended to bleed out every piece of property from the company and transfer it as profit to the investors.
EDIT: I've previously said on HN that I'd like to buy Flickr and roll it into a benefit corp/non-profit sort of deal. I firmly believe that Pro users can pay enough that Flickr can self-sustain itself.
Integrate with Tumblr has a good upshot - browsing Flickr picture is kind of dull. If you have a Medium-like site for photo publish, you can create a web photo magainze!
The one - on Tumblr is all the custom themes. IDKY, but Medium just looks better for readers. Yahoo needs to make Tumblr for high quality posts, but Tumblt started out with teens, mostly asks, gifts and quotes. Now really just about reblogging every day and like I said I keep seeing the same stuff reblogged every day.
[1]: https://news.ycombinator.com/item?id=10862680
The effect of the messaging is usually that the company implements some of the changes themselves to avoid being forced or ousted, which also usually leads to short-term stock gains, which is what the activist investor was after in the first place.
I have an extremely paltry amount of Yahoo stock (5 shares) that I bought on a whim in 2014. This is the only investing I've done outside of my company 401k. I know absolutely nothing about investing. What the heck should I do with it at this point?
Its current worth is about 5*$30.63 ~= Not much.
So best advice is to sit on it and do nothing... and when you're bored, go to www.investopedia.com and read up about how stock markets work - it will come in useful in future!
If you had 5000 shares I'd probably say the same thing -- this was already priced into the stock and almost all of the value in the stock is the Alibaba holding.
If the stock is up from when you bought it, maybe I'd say take some profit off the table, but honestly a sale of Yahoo's web business would probably increase the value, but who knows.
I personally don't invest in tech stocks because they're too volatile. :)
http://amzn.to/1PjrGpY
Or skip that and just stick to index funds in the future. Also, check your 401K and make sure the expense ratio is low compared to something like a Vanguard index fund. If not, make some noise.
It feels like there is nothing much left outside of the web business unless I am missing something. May be the Baba shares?