Yahoo shareholders get sliver of false hope

Jack Ma Credit: Photo credit: REUTERS/Chip East

Alibaba Group splits retail unit into three companies, hints at public offering

Shares of Yahoo (NASDAQ: YHOO) were up in early trading Thursday after Alibaba Group CEO Jack Ma told employees in a letter that the company "won't rule out the possibility" of going public someday.

Yahoo, owns either 40 percent or 43 percent of Alibaba Group, depending on which news story you read. Either way, the struggling Internet pioneer and its shareholders likely would stand to benefit for two reasons if Alibaba launched an IPO: 1) Alibaba is China's largest e-commerce company, and thus a candidate for a successful public offering, and 2) About half of Yahoo's $19.6 billion market capitalization is based on its Alibaba holdings.

Also see: Jack Ma would like to buy Yahoo (and, no doubt, fire Carol Bartz)

Let's put that another way: Take away Alibaba, and Yahoo is worth half of its current market cap. No wonder Yahoo has rebuffed offers from Ma to buy out Yahoo's stake in Alibaba, for which it paid $1 billion in 2005 and is now worth 10 times as much.

Ma's comment -- which accompanied an announcement that Alibaba has split its Taobao retail unit into three different companies -- probably is behind Yahoo's mini-surge in Thursday's stock market.

Shares climbed 28 cents, or 1.9 percent, to 15.09 in morning trading before falling back to 14.99 by early afternoon.

But let's go back to Ma's statement, as reported by Bloomberg News. Alibaba "won't rule out the possibility" of going public someday. As an indication of intent, it's essentially meaningless.

However, Yahoo shareholders are now in the position of clinging to slim strands of hope. Under CEO Carol Bartz, the company's revenue and stock price have been stagnant, and no solid turnaround strategy has emerged. In addition, Bartz's own big mouth has poisoned her relationship with Ma (see link above).

More recently, a public dispute between Yahoo and Alibaba erupted over the Chinese company transferring ownership of its Alipay online payment unit to a company run by Ma. Yahoo claimed it was not informed of the move. Alibaba says the deal was discussed with board members for many months.

So right now it seems Yahoo's best bet for increasing shareholder value is an IPO from a company that wants nothing to do with Yahoo. What happens to Yahoo's stock when Ma keeps putting off the IPO? It will continue to drift. And that will ramp up pressure on Bartz to sell back Yahoo's stake in Alibaba and free up some of its investment. Or force the Yahoo board to show Bartz the door.

Either outcome would be in the best interests of Yahoo shareholders.

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