Jeffrey Smith’s Starboard Capital LP has been an outspoken activist investor of Yahoo! Inc. (NASDAQ:YHOO) since building a 1% stake in the internet giant in the third quarter of last year, with ownership of 7.72 million shares. This week they got one of their big wishes, as Yahoo announced they would spinoff their remaining 15% stake in Alibaba Group Holding Ltd (NYSE:BABA) into a separate business entity dubbed SpinCo, which will be classified as an investment company.
The move is a boon for shareholders like Starboard, extracting the maximum possible value from what was Yahoo! Inc. (NASDAQ:YHOO)’s most valuable remaining asset. As opposed to Yahoo’s earlier sale of 140 million Alibaba Group Holding Ltd (NYSE:BABA) shares in September, which netted them $9.4 billion but cost them (and essentially shareholders) a tax bill of $3 billion in the process, the move to spinoff the remaining shares of the Chinese e-commerce giant results in a tax-free transaction for shareholders.
Unsurprisingly, investors were tickled pink by the news, sending Yahoo’s stock soaring shortly after the announcement, though disappointing earnings results from Alibaba Group Holding Ltd (NYSE:BABA) the next day put a damper on the good vibes, sending Yahoo’s stock tumbling.
Still, the development was great news for investors, who feared that Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Mayer could make a similar sale or trade of the remaining stock as she did in September, and use the proceeds to make another large acquisition. Investors have put pressure on her to curb her acquisition spree, which has done little to improve the company’s fortunes. Yahoo missed their revenue expectations for the fourth quarter with $1.18 billion in revenue, down from $1.20 billion a year ago.
There are now a number of possibilities open for investors like Starboard to encourage Yahoo! Inc. (NASDAQ:YHOO) to take. One such option which Starboard has already put forth is for Yahoo to merge with AOL, Inc. (NYSE:AOL), a move which could supplement Yahoo’s ailing mobile video business.
Another possibility could be a sale of Yahoo itself to another company, a move that has long rumored with Yahoo essentially trading at zero or even negative value. The latest figures have Yahoo’s core business (minus its still-owned Alibaba shares) currently trading at -$6.30 per share, though it’s expected Yahoo will have a market cap of between $6 billion to $10 billion after the SpinCo spinoff is complete.
Regardless of what happens, we are big believers in the value of tracking what hedge funds are doing, and firm believers in the value they provide to shareholders when they take on the mantle of activist investors, ensuring that shareholder’s best interests are being represented in the company’s affairs and providing them fresh perspectives on how to maximize value.
That’s why it’s so important to track and follow the moves of activist investments from the outset, even before those investors attempt to affect any big changes at the companies in question. This has proved to be a profitable investment angle, and why we actively report on the latest activist positions from the most successful hedge funds in the world.
Other hedge funds we track with investments in Yahoo! Inc. (NASDAQ:YHOO) include David E. Shaw’s D. E. Shaw & Co. with 19.57 million shares, John Thaler’s JAT Capital Management with 8.85 million shares, and Rob Citrone’s Discovery Capital Management with 7.53 million shares. Funds we track owned over 10% of Yahoo’s common shares as of September 30.
Alibaba Group Holding Ltd (NYSE:BABA) is also proving to be an extremely popular stock among our tracked hedge funds, with an expectation that its long-term performance will outdo the market as it expands internationally, and internet penetration in China increases. However another option for investors given the interesting value connection between Yahoo! Inc. (NASDAQ:YHOO) and Alibaba is to short Alibaba, and go long on Yahoo, essentially creating the spinoff synthetically before it happens.
Some of our tracked funds with large investments in Alibaba Group Holding Ltd (NYSE:BABA) include Andreas Halvorsen’s Viking Global with 11.39 million shares, Dan Loeb’s Third Point with 7.2 million shares, and George Soros’ Soros Fund Management with 4.4 million shares.
Disclosure: None
