Altaba, The Spin That Never Happened, Will Become The Company That Isn’t

Much ink was spilled, on these pages and countless others, discussing Yahoo’s plan to spinoff its stakes in Alibaba(BABA) and Yahoo! Japan as an independent company. For much of 2015, the company planned to spin off this stake, together with a Yahoo’s small business unit as Aabaco Holdings. The small business unit was included to maintain the tax free nature of the spinoff by including a real operating business though it was dwarfed by the large investment stakes. The plan began to fall apart when the IRS clamped down on this type of transaction, specifically targeting Yahoo. Yahoo attempted to fight valiantly, but, in the end, you can’t fight the tax man and win. Starboard’s agitation against the spinoff was the final blow.

Starboard’s involvement forced a sale of Yahoo’s operating assets to Verizion(VZ) where it combined with AOL to form Oath, now known as Verizon Media Group. The remaining company chose not to use the Aabaco name, instead rebranding as the equally horrendous Altaba(AABA). Starboard had not been the first activist fund to successfully push change at Yahoo; embattled CEO Marissa Mayer had been hired after a bruising fight with Dan Loeb’s Third Point. Nor was it the last- last year, TCI pushed Altaba to liquidate.

TCI’s wish is now coming true. Last week, Altaba announced that it planned to liquidate and dissolve the company. It plans to make an initial distribution to shareholders in late 2019 which it estimates will be “between $52.12 and $59.63 per Share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba Share value at the time of distribution, of $177.00 per Alibaba Share);”  The company will make subsequent distributions as well, aiming to disappear itself completely by late 2020.

The company previously liquidated its stake in Yahoo! Japan and has been reducing its Alibaba stake, but we are now entering the home stretch. It will take time, but the company also has an estimate for the total value of distributions.

The Fund currently estimates that the Fund could make total aggregate liquidating distributions to stockholders, including the pre-dissolution liquidating distribution referred to above, ranging between approximately $39.8 billion and $41.1 billion (approximately $76.62 and $79.22 per Share, respectively), which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba Share value at the time of distribution, of $177.00 per Alibaba Share. Further details regarding anticipated future distributions will be disclosed in the Fund’s proxy materials to be filed in connection with the special meeting.

At Friday’s close of $74.01, there’s not a lot of point in holding for a distribution that is not much more than that and may take 18 months. On the other hand, Alibaba closed at $185.35 on Friday, significantly above the $177 contemplated in Altaba’s calculations. A meaningful appreciation in Alibaba’s stock price could create significant additional value for holders of Altaba stock.  Barron’s goes into these calculations in more detail and concludes that selling now may be the most prudent path given the potential risks and rewards. Whatever happens, Yahoo’s initial investment in Alibaba will go down as one of the most successful investments of all time.

Disclosure: The author holds no shares in any stock mentioned