Altaba Finally Rewards Its Shareholders. But the Ultimate Payoff Is Uncertain.
The former Yahoo! paid $51.50 a share to its holders Monday. Investors stand to make an estimated $3, or 15%, as the liquidation process plays out over the coming years.
By Andrew Bary
Altaba ? made a big distribution to its shareholders Monday under its liquidation plan. Its stock now amounts to an unusual arbitrage situation, with investor returns hinging on the amount and timing of future payments.
Altaba (ticker: AABA), the former Yahoo!, paid $51.50 a share to its holders Monday. The shares are trading Tuesday at $19.59, up 29 cents, adjusted for the distribution. The stock isn’t down by the full amount of the distribution, having closed Monday at $70.80.
It’s estimated that Altaba’s predistribution net asset value was about $74 a share, dropping to $22.50 now. This means investors stand to make about $3, or 15%, as the liquidation process plays out over the coming years. There is uncertainty, however, about how much investors will get in the liquidation and when the payments will be made. The bulk of the company’s assets now sit in cash and cash equivalents.
Barron’s has written that retail investors should consider selling their Altaba stock because of the complexity of the situation and its relatively moderate return potential—as well as potential liquidity issues. No company of Altaba’s size—$37 billion as of Monday—has ever liquidated. Wall Street arbitragers are believed to be sizable holders of the stock.
One of the biggest question marks is potential Chinese capital-gains taxes on Altaba’s sales of what had been its largest asset, a 15% stake in Alibaba Group Holding ? (BABA). Investors are assuming that no Chinese capital-gains taxes will be levied. The bulk of the funds that Altaba now is holding back are for potential Chinese taxes. It also has reserved about $10 billion for U.S. taxes that will be paid related to the Alibaba share sales.
Altaba has said it plans to make a second distribution in the fourth quarter of 2020. A final distribution or distributions are expected at a later date, which analysts have estimated could be in 2022.
There are only a few Wall Street analysts covering the company. The stock is being tracked by Street arbitrage and special-situation trading desks. The amount and timing of future distributions will reflect decisions by the Delaware court overseeing the liquidation. The quicker and larger the payments, the better for investors.
Wall Street analysts expect Chinese tax authorities to decide not to impose any capital-gains taxes on all of Altaba’s sales of Alibaba stock. The Chinese already have decided not to impose them on 2018 sales by Altaba. If China does seek to impose capital-gains taxes, it would complicate the liquidation process and potentially cut into returns.
Churchill Capital analyst Nick Pappas wrote recently that he expects Altaba to make a distribution of about $20 a share to holders in late 2020, with the rest coming at a later date or dates once the Delaware court is convinced that all potential liabilities have been addressed. “We believe that any further distribution (s) may take a number of years to be paid,” he wrote.
Adding to the complexity of the Altaba situation is that the company plans to file a certificate of dissolution in Delaware on Oct. 4. The shares will be delisted from the Nasdaq after then. It is expected that the shares will continue to trade over-the-counter on the Pink Sheets thereafter. The Pink Sheets are less liquid than the Nasdaq. The company said Tuesday that it will request the Depository Trust Company continue to maintain records of shareholders, allowing for the transfer of the liquidation rights—likely on the Pink Sheets.
The liquidation plan, announced by Altaba in April, caps a long history for Yahoo!, one of the leading internet companies during the dot-com boom of the late 1990s. While Yahoo!’s internet business withered, the company made a shrewd early investment in Alibaba that turned into a hugely valuable stake in the Chinese e-commerce company. Under pressure from investors, Yahoo! sold its internet business to Verizon Communications ? (VZ) in June 2017, after which it changed its name to Altaba.
The intention at the time was to maximize the value of the company’s remaining assets, mainly the 15% stake in Alibaba, as well as a much smaller stake in Yahoo Japan ? (4689.Japan). Under CEO Tom McInerney, Altaba sold the vast bulk of the Alibaba stock and all of Yahoo Japan.
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