Yahoo change in spinoff direction draws analyst praise, lukewarm share reaction
After Yahoo (YHOO) said it would suspend its efforts to spin off its stake in Alibaba (BABA), two analysts - SunTrust's Robert Peck and Piper Jaffray's Gene Munster - were upbeat on the move. WHAT'S NEW: Yahoo said that it would terminate its efforts to spin off its large stake in Chinese e-commerce giant Alibaba. Instead, the company will now evaluate alternative transaction structures, focusing specifically on a reverse spin off in which Yahoo's assets and liabilities other than the Alibaba stake would be transferred to a newly formed company. Explaining the rationale for the change in strategy, Yahoo Chairman Maynard Webb told CNBC that it would take too long to get clarity on the tax implications of an Alibaba spin off. Meanwhile, Yahoo is examining "several alternatives" short of selling its core business, but would carry out its fidiuciary responsibilities if a buyer emerges, the chairman added. ANALYSTS' VIEWS: Yahoo made a "great" decision, given the tax risks of selling off the Alibaba stake, according to SunTrust's Robert Peck. The board should be praised for looking to optimize the company's structure and maximize shareholder value, as well as minimizing risk, stated Peck, who kept a Buy rating on the shares. Selling or spinning off Yahoo's core would produce similar results as spinning off the Alibaba stake in a tax free transaction, Munster stated. Yahoo's current share price still reflects full taxation of the Alibaba spin off and a tax free resolution would increase the value of Yahoo's stock by $12 per share, Munster contended. He kept a $39 price target and Overweight rating on the shares. Meanwhile, analysts at Sterne Agee CRT say that investors should begin to apply tax discounts to the Yahoo Japan stake and the Yahoo core, instead of the Alibaba stake. Using this method, the firm estimates that the near-term value of Yahoo's stock is $43 per share. It keeps a $50 price target and Buy rating on Yahoo. PRICE ACTION: In late morning trading, Yahoo was flat near $34.80 per share
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