[dlubarov]

Rather than liquidating the entire company, Yahoo could sell its Yahoo Japan and Alibaba shares, pay a one-time dividend, and keep its core business intact. The now-isolated core business would have positive value.

But it might be difficult to acquire a controlling interest in Yahoo without driving up the price.

[dragonwriter]

> Rather than liquidating the entire company, Yahoo could sell its Yahoo Japan and Alibaba shares, pay a one-time dividend, and keep its core business intact.

Except there is not a lot of reason to believe that either:

1. Yahoo could dump its holding of Yahoo Japan shares at current market prices (current share price is a good rough estimate of realizable value if you aren't trading enough to move the market, but selling off around a third of Yahoo Japan isn't that small of a block...)

2. Yahoo could actually find a buyer for its Alibaba holdings (a non-public firm) at the analyst estimate of its value used in the article.

> The now-isolated core business would have positive value.

The article doesn't really make the case for that. It says the core business is profitable, but current profitability doesn't mean positive value; it could be in debt, profitable, and not expected by the market to remain profitable long enough to get out of debt -- that would give it negative market value.

Really, all the facts in the article tell you is that at least one of the following is false:

1) The author's implicit assumptions about the market value of Yahoo's core business, or

2) The estimated value of privately-held Alibaba, or

3) The assumption that realizing the value of its holdings in YJ and Alibaba would be transaction-cost free for Yahoo (and thus that those holdings should be undiscounted when aggregate to determine Yahoo's worth), or

4) The efficient market hypothesis.

I have no problem believing that all four are false, and misleading in this case.

[dlubarov]

> > The now-isolated core business would have positive value.

> The article doesn't really make the case for that. It says the core business is profitable, but current profitability doesn't mean positive value; it could be in debt, profitable, and not expected by the market to remain profitable long enough to get out of debt -- that would give it negative market value.

Stock can't have negative value. If a company becomes insolvent, its stockholders aren't forced to pay its debts.

The article agrees: "Unless the probability of that outcome is 100 percent -- a rare thing in this life -- then Core Yahoo should have some positive value."

[dragonwriter]

> Stock can't have negative value.

A component of a business can. Ignoring the problems that make marginal stock prices problematic for overall valuation, and transaction costs, etc., the stock price of a corporation should be max(0,sum(value of all components of the business)). The fact that this value should never be less than zero doesn't mean that no component of the business has a negative contribution.

[dlubarov]

I think we're in agreement. I agree that "Core Yahoo" might presently have negative value, because it could lose money in the future and eat into the company's other assets.

I'm just saying that if Yahoo sold its major stock assets and transferred most of its cash to shareholders, the remainder of the company (consisting of "Core Yahoo" and not much else) would have positive value.

[prostoalex]

Yeah, it has long been a point among activist investors. With Alibaba IPO the liquidity is there, the question is whether Yahoo! will get the best return now or in the future - they were somewhat criticized for divesting of their Google shares at $82-83 a share http://blogs.wsj.com/overheard/2012/02/28/yahoo-buys-low-sel...

Also, $100 chunk of Alibaba shares is not $100 distributed to you if you're a Yahoo! shareholder - first there's US corporate tax on that income, and then a dividend tax on top of that, which could be qualified or non-qualified depending on your shareholder status.