By Michele Chandler
Yahoo (YHOO) stock climbed for the fifth straight trading day on Tuesday amid chatter that China e-commerce giant Alibaba Group (BABA) might buy back the valuable stake Yahoo now holds in it, according to a media report.
Rumors that Alibaba might buy back its stake from Yahoo have emerged before, although some observers say such a transaction is unlikely because of high tax implications for Alibaba.
Yahoo has said it is approaching buyers potentially interested in all or part of the company — and Alibaba’s recent financial moves have some investors wondering if the Chinese conglomerate is ready to make a play for Yahoo, according to a report in Variety.
Alibaba senior executives Jack Ma and Joe Tsai said on Monday that they will spend a combined $500 million to buy company stock. It will be part of a $4 billion stock-buyback plan that Alibaba announced in August.
Comcast (CMCSA), Verizon (VZ) and AT&T (T) “remain the leading candidates to acquire Yahoo,” said Mizuho analyst Neil Doshi in an industry note this week, adding that those companies could offer a higher price than private equity groups, wield huge subscriber bases across Internet and TV, and operate leading mobile services.
Yahoo rose 3.2% Tuesday to 32.80, hitting its 2016 high. Alibaba stock rose 3%. Yahoo has gained 25% since early February, but is down 26% from where it was trading this time last year.
Yahoo shares also climbed more than 3% on Monday.
Yahoo’s Asian assets — comprised of its Alibaba holdings and a 35.5% stake in Yahoo Japan — represent the vast majority of Yahoo’s $3.8 billion market value. Yahoo owns a 15% stake in Alibaba, or about 384 million shares.
Asked about Alibaba’s interest in buying back its shares from Yahoo, Alibaba Executive Vice Chairman Joe Tsai said during an October call with analysts that Alibaba would buy back its shares “if it is very significantly accretive to our shareholders and that’s the principal we operate on.”
Scott Rostan, founder and CEO of Training The Street, a group teaching corporate valuation and merger and acquisition skills, told IBD this week that Alibaba’s buyback of its shares from Yahoo “is definitely possible.”
He added: “They could buy back 15% of their own stock and then (effectively) own Yahoo, which would be a very ironic twist.”
In 2012, Alibaba bought about half of Yahoo’s then-40% stake in a deal valued at about $7.6 billion with the backing of China’s sovereign-wealth fund, China Investment Corp., and a clutch of private-equity firms.
Because Alibaba’s purchase of the remainder could result in a huge tax bill on Yahoo’s gains from the Alibaba, “I think they have no interest,” Shanghai-based 86Research analyst Sean Zhang told the Wall Street Journal in December. “They will continue to focus on growth, focus on building a more competitive company,” Zhang said.
Alibaba said that it had $18.2 billion in cash, cash equivalents and short-term investments as of December 2015.
Yahoo’s directors are close to offering at least two board seats to activist hedge fund Starboard Value in order to avert a proxy fight, according to a report on Friday in the New York Post. Starboard founder Jeff Smith is looking to oust Yahoo CEO Marissa Mayer and force a sale of the company’s core Internet business.
On Monday, Yahoo also said that it may have to write-down the goodwill value of Tumblr, more than two years after the Web pioneer spent $1.1 billion to buy the microblogging site.
Yahoo said earlier that it took a $230 million impairment charge related to Tumblr and was considering strategic alternatives for its core Internet business.