Alibaba Might Borrow Less in Proposed Yahoo! (YHOO) Scheme
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Yahoo! (Nasdaq: YHOO) shares are ticking slightly higher Wednesday following reports Alibaba might need to scale-back the size of its requested loan in order to reacquire a portion of Yahoo!'s ownership in the company.
According to Reuters, Alibaba might cut it's requested loan by 25 percent from $4 billion to just $3 billion. Alibaba will need to fund the rest with cash; the company is said to have about $3 billion on the books.
Alibaba reducing the size of its required loan might be an effort to attract more lenders, and/or garner a better interest rate.
Sources have said Yahoo!'s stake in Alibaba might be worth as much as $13 billion. Alibaba and Yahoo! plan to do a "cash-rich split-off" scheme in which Alibaba forms a subsidiary, fills it with cash and an asset of Yahoo!'s choosing, then Yahoo! will transfer shares of Alibaba to get shares of the newly-formed subsidiary. The scheme is designed to avoid potential taxation, a value benefit for investors.
Which brings us to another point: getting approval for the loan might be tricky in the current lending environment. Banks might be looking to lend funds to a functioning company, rather than one set-up as a "holding" company, which is what the Alibaba scheme entails. Operating companies pay back loans out of cash flows, while holding companies do so through dividends, which are upstreamed from the parent company.
Shares of Yahoo! are up about 0.7 percent early Wednesday.
According to Reuters, Alibaba might cut it's requested loan by 25 percent from $4 billion to just $3 billion. Alibaba will need to fund the rest with cash; the company is said to have about $3 billion on the books.
Alibaba reducing the size of its required loan might be an effort to attract more lenders, and/or garner a better interest rate.
Sources have said Yahoo!'s stake in Alibaba might be worth as much as $13 billion. Alibaba and Yahoo! plan to do a "cash-rich split-off" scheme in which Alibaba forms a subsidiary, fills it with cash and an asset of Yahoo!'s choosing, then Yahoo! will transfer shares of Alibaba to get shares of the newly-formed subsidiary. The scheme is designed to avoid potential taxation, a value benefit for investors.
Which brings us to another point: getting approval for the loan might be tricky in the current lending environment. Banks might be looking to lend funds to a functioning company, rather than one set-up as a "holding" company, which is what the Alibaba scheme entails. Operating companies pay back loans out of cash flows, while holding companies do so through dividends, which are upstreamed from the parent company.
Shares of Yahoo! are up about 0.7 percent early Wednesday.
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