No Time to Sell Yahoo Stock
Japan’s SoftBank Group Corp (OTCMKTS:SFTBF) has announced plans to sell a 4.2% stake in the Chinese giant Alibaba Group Holding Ltd (NYSE:BABA). SoftBank’s move has immediately raised speculation about the fate and value of Yahoo! Inc. (NASDAQ:YHOO), which owns a 15.4% stake in Alibaba stock. Yahoo stock suffers whenever Alibaba drops.
Yet, it’s no time to be selling Yahoo.
SoftBank is Alibaba’s main shareholder and the sale would bring down its holdings from 32% to 28%. The transaction could generate some $8.0 billion for the company, which remains the top shareholder of China’s online retail giant. So, it’s not in SoftBank’s interest to force the value of Alibaba stock any more than it is in Yahoo’s interest. For this reason, nobody needs to fear SoftBank hatching some plan to force down Yahoo’s value to take it over.
Yahoo, which is Alibaba’s second-largest shareholder with a 15.4% stake, also fell on the news. (Source: “Does SoftBank Plan To Sell Alibaba Stake Help Or Hurt Yahoo?,” Investor’s Business Daily, June 1, 2016.)
Yes, there was speculation that SoftBank’s sale of its Alibaba assets was going to go toward a possible bid for Yahoo assets. However, the Japanese company has denied the rumors. SoftBank reiterated its intentions, stating it will use “the capital proceeds to manage our leverage and our balance sheet, which does not include expanding and buying things in the U.S.” (Source: “Softbank says not involved at all in Yahoo Inc asset sale,” Reuters, June 1, 2016.)
SoftBank is a leading player in the telecom world. The Japanese company is one of the main operators in Japan; it also owns telecom operator Sprint in the U.S. But SoftBank has accumulated huge debts and needs to start shedding some excess weight; that’s where Alibaba comes in to save the day.
Yahoo was one of the first to invest in Alibaba. That’s how it managed to gain such a large chunk of the Chinese retailer’s capital. Yahoo’s BABA stake is worth some $24.0 billion. (Source: “Alibaba Raises More Cash, Yahoo Stake In Sight?,” Forbes, February 29, 2016.) Yet that amount is precarious given the recent sell-off of Alibaba stock, which for Yahoo investors was the ultimate cushion to absorb risk in times of hardship.
Yahoo stock has actually suffered considerably from the past week’s volatility in Alibaba’s stock. On May 26 alone, YHOO shares fell five percent as Bloomberg reported that the Securities and Exchange Commission (SEC) was investigating Alibaba’s accounting practices. The problem is that when Alibaba sneezes, Yahoo catches the flu. Alibaba is the one asset that Yahoo is grabbing to keep afloat. (Source: “Yahoo! Inc. (YHOO) Tumbles As Investors Flee Alibaba (BABA),” Insider Monkey, May 26, 2016.)
Yahoo is trying to sell its core business assets and there are several interested bidders from AT&T Inc. (NYSE:T) to Verizon Communications Inc. (NYSE:VZ). Indeed, Yahoo stock has gained well over 10% year-to-date. The gains have not come from Alibaba’s holdings as much as they have come from the frenzy over its core assets.
That frenzy has intensified after Warren Buffett decided to indirectly enter the bidding contest for Yahoo by backing Dan Gilbert of Quicken Loans fame. Gilbert has thrown his hat in the race for Yahoo’s core assets with Warren Buffett’s financial backing.
So, if Warren Buffett is still in, even indirectly, it’s no time to get out of Yahoo.