What's Altaba Worth?
We now value Altaba at $55 per share, mainly due to Morningstar’s higher valuation of Alibaba, in which Altaba has a 15% stake.
Yahoo (YHOO) completed the sale of its core business to Verizon for approximately $4.48 billion. The firm will be called Altaba, Inc. (AABA) starting June 16, 2017, and will begin trading as a closed-end management company on June 19, 2017. We now value Altaba at $55 per share, mainly due to Morningstar’s higher valuation of Alibaba, in which Altaba has a 15% stake. With the shares trading near our new fair value estimate, we recommend a wider margin of safety before investing in this no-moat name.
Our valuation of the new closed-end investment management company is based on Morningstar’s 14% increase in Alibaba’s fair value estimate to $148 per ADS, along with the valuation of Yahoo Japan. We have also taken into account possible tax liabilities based on unrealized capital gains of those two holdings. Further, we are assuming a potential $448 million liability related to Yahoo’s data breaches, of which Altaba will be responsible for 50%. Last, we have included net cash of $10 billion in our valuation, representing the $4.48 billion received from Verizon and a cash balance of $7 billion reported on Yahoo’s March 2017 balance sheet, partially offset by $1.3 billion in senior convertible notes due in 2018. We also note that Yahoo is using $3 billion of its cash in a self-tender offer to repurchase its shares and create liquidity for shareholders that wanted to get out before the closing of the Verizon deal. The company has stated that the tender offer will expire on June 16.
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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.