Yet Another Distraction for Yahoo

Yahoo looks to save $4 billion in taxes, but the complex scheme could delay a turnaround

   

Yahoo (NASDAQ:YHOO) never seems to be out of the headlines. The problem is that the news is usually not so good — or shows the latest drama or distraction.

Just look at a recent report from Bloomberg.com: Yahoo is now trying to figure out how to avoid paying as much as $4 billion in taxes that would be due for selling off a huge chunk of its Asian assets.

While this is certainly a smart thing to do, it still involves a highly convoluted set of transactions. In tax lingo, the structure is called a cash-rich split-off. It essentially tries to lower the cash amount by swapping operating assets between the parties.

This means Yahoo, Alibaba and Softbank may need to engage in a variety of acquisitions, which could be a long process. In fact, it looks like some of the companies may include The Weather Channel, AutoTrader.com and WebMD Health (NASDAQ:WBMD)

Confusing, huh? It sure is. It’s also the kind of stuff that makes tax attorneys and investment bankers wealthy.

But it’s far from foolproof. Keep in mind that this transaction would be one of the largest of its type in history, which could raise concerns with the Internal Revenue Service. At the same time, it could even run into political pressures because Alibaba — which wants to buy back its shares from Yahoo — is based in China.

Besides, putting together multiple acquisitions will require lots of demands on Yahoo’s management. Is this really an effective use of time for CEO Scott Thompson, who just came on board this week?

No doubt, the prospect of Yahoo getting bogged down in some major financial engineering is good news for rivals like Facebook, Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).

Now, it does look like Thompson is a good choice to get Yahoo back on track. As the president of eBay’s (NASDAQ:EBAY) highly successful PayPal business, he demonstrated his ability to build a thriving business, especially in the booming mobile market. During his tenure, he boosted PayPal users from 50 million to over 100 million. Revenues hit $3.3 billion in 2010 and are expected to more than double by 2013.

So, Yahoo can benefit from Thompson’s skills. Yet it’s going to take time to make progress. And unfortunately, this sort of financial engineering will only delay things.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, http://investorplace.com/2012/01/yet-another-distraction-for-yahoo/.

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