Yahoo! (NASDAQ: YHOO)
Events: FV Update
December 19, 2014
- Recent PPS: $50.91
- Shares Out: 1,032
- Market Cap: $52.54 billion
- Net Cash & Asian Assets: $55.82 billion
- 2015E Core EBITDA: $1,321 million
Valuing YAHOY at $7.18, BABA at $109 and Yahoo! Core at 7 times 2015E EBITDA, YHOO is worth between $44 and $63 per share depending on the tax rate applied to the Asian assets.
Holding to the Cash-Rich Split (CRS) model (i.e. 2/3 of the Asian assets convertible to cash tax-free), YHOO has approximately $30.44B of buyback capacity assuming a $2B minimum cash balance. A Dutch Tender conducted at a 15% premium to YHOO’s recent closing price would shrink the share count by approximately 520 million shares. The pro forma FVPS would then be $67.62 at a 0% tax liability.
While up significantly from the IPO, I believe BABA is in a very reasonable range of fair value, thus bolstering the comfort with the analysis above.
Given BABA’s long-term potential, investor agitation for a tax-efficient disposal of the Asian assets, the potential for an accretive merger with AOL and the implication by YHOO’s current quote that it will pay over 50% of its statutory tax rate on its Asian assets (assuming Yahoo! Core is fairly valued at 7 times), I believe YHOO remains an attractive investment at this time.