Yahoo could just be on the verge of a major acquisition. Arguably the biggest acquisition since its new CEO Marissa Mayer took over.
Early last week, investor activist Jeffrey Smith urged Yahoo to acquire AOL. The two companies, the investor opines, would be a wonderful fit for each other. The investor also stated that such a move would serve to reduce the future taxes on the American company's lucrative 15% stake in Chinese firm Alibaba.
Should yahoo buy AOL, then that would present the perfect opportunity for Yahoo to dispense of its shares in Alibaba while ensuring it is not faltered by the sheer weight of capital gains tax.
You see, Yahoo is a company that is surprisingly worth nothing, that is according to Starboard value LLP, an investment firm owning shares in Yahoo. This is because Yahoo owns large stakes in e-commerce behemoth Alibaba and Japanese firm Yahoo Japan. Yahoo owns 15% of Alibaba and 35% of Yahoo Japan, both valued at 11 billion dollars, a figure grossly more than the total price of the shares in Yahoo's stock. Most speculators think that yahoo will sell its stakes in the two and incur heavy taxes, then spend the rest of the proceeds on startups.
This would not be a new phenomenon. Yahoo CEO Mayer has come under sharp criticism for using $1.3 billion and internet blogging sites and other startups since joining Yahoo. This is in her bid to appeal to a younger demographic.
Yahoo buying AOL may just present the best tax evasion strategy. Yahoo is looking at losing 38% of its 140 million share price in capital gains taxes if it sells its shares in Alibaba directly. However, through a split-off, Yahoo may acquire AOL, then Alibaba could buy AOL, load it with cash and then swap it to Yahoo in exchange for Alibaba shares. AOL would consider this as such a sale would not only provide its executives with huge cash flows but also grant the new firm plenty of advertising bargaining chips. Alibaba, a firm that recently went public, would then have its shares from Yahoo at discounted rates, considering no tax was paid. It's tax evasion and it's legal. Even better, everyone wins.
