Alibaba.com IPO is good for Yahoo

Alibaba.com is set to raise $1.5B in its IPO by selling 17% of the company - that's an $8.8B market cap. Not quite as good as Facebook's $15B, but still pretty good. Yahoo (YHOO) owns 39% of Alibaba Group, the parent of Alibaba.com. So Yahoo's sake in Alibaba is worth at least $8.8B * 83% (Alibaba Group's ownership of Alibaba.com) * 39% (Yahoo's ownership of Alibaba Group)= $2.8B. The IPO is WAY oversubscribed, so the stock is likely to go up initially. Let's call Yahoo's stake at least $4B 2 weeks after the IPO.

Yahoo is carrying this on their books at $1.4B. (A piece of their 10Q is copied below). So they have a net gain in their assets of $2.6B - which is $2 for each of their 1.3B shares outstanding. Of course, unless they sell their stake there's no telling what the final value is - Alibaba Group could waste all the money and Yahoo could end up with nothing, or, by anoter account, they could end up with $13-$15 / share.

At any rate, my investment strategy won't let me buy Yahoo anyway, but if it did, I'd do some serious analysis based on this IPO. It might already be priced in or maybe Yahoo is overvalued, but if not, it's worth checking out.

The 10Q says:

Note 4

INVESTMENTS IN EQUITY INTERESTS

Equity Investment in Alibaba. On October 23, 2005, the Company acquired approximately 46 percent of the outstanding common stock of Alibaba, which represented approximately 40 percent on a fully diluted basis, in exchange for $1.0 billion in cash, the contribution of the Company’s China based businesses, including 3721 Network Software Company Limited (“Yahoo! China”) and direct transaction costs of $8 million. Pursuant to the terms of a shareholder agreement, the Company has an approximate 35 percent voting interest in Alibaba, with the remainder of its voting rights subject to a voting agreement with Alibaba management. Other investors in Alibaba include SOFTBANK Corp. (“SOFTBANK”). The investment in Alibaba is being accounted for using the equity method, and the total investment, including net tangible assets, identifiable intangible assets and goodwill, is classified as part of Investments in equity interests on the Company’s condensed consolidated balance sheets. The Company records its share of the results of Alibaba and any related amortization expense, one quarter in arrears, within earnings in equity interests on the condensed consolidated statements of income.

Through this transaction, the Company has combined its leading search capabilities with Alibaba’s leading online marketplace and online payment system and Alibaba’s strong local presence, expertise and vision in the China market. These factors contributed to a purchase price in excess of the Company’s share of the fair value of Alibaba’s net tangible and intangible assets acquired resulting in goodwill.

The purchase price was based on acquiring a 40 percent equity interest in Alibaba on a fully diluted basis. As of June 30, 2007, the Company’s ownership interest in Alibaba was 44 percent, an approximate 2 percent decrease from the initial investment, primarily as a result of the conversion of Alibaba’s outstanding convertible debt in April 2006. The Company’s ownership interest in Alibaba may now be further diluted to 39 percent upon exercise of Alibaba’s employee stock options. The Company will recognize non-cash gains if and when such further dilution to its ownership interest in Alibaba occurs, as such reduction in interest results in an incremental sale of Yahoo! China. In allocating the excess of the carrying value of its investment in Alibaba over its proportionate share of the net assets of Alibaba, the Company allocated a portion of the excess to goodwill to account for the estimated reductions in the carrying value of the investment in Alibaba that may occur as the Company’s equity interest is diluted to 40 percent.

As of June 30, 2007, the difference between the Company’s carrying value of its investment in Alibaba and its proportionate share of the net assets of Alibaba is summarized as follows (in thousands):

Carrying value of investment in Alibaba $ 1,414,801

[...]

I need to learn how to put tables in Blogger.

Technorati: Yahoo, investing, YHOO, Alibaba