In my debut blog, posted January 24, 2012, I expressed my opinion that important events were in the offing, based on the sudden resignation of Jerry Yang from the Yahoo board. Shortly thereafter came the announcement that Alibaba of China was intent on buying back Yahoo’s stake, along with the Internet giant’s shares in Yahoo Japan. If this deal is successful, it will give Yahoo billions in cash, thereby enhancing its market value and causing the stock price to soar. Unfortunately, the negotiation ran into a snag because Yahoo could not get terms that allowed it to take the profit tax-free.
The story did not end there, however. In a matter of days after the apparent deadlock in the Alibaba/Yahoo deal, Jack Ma—CEO of Alibaba—made a move to take his Internet company private by offering a substantial premium over the then-prevailing market price. This offer allegedly stemmed from his desire to operate his company without the restrictions normally imposed on public entities. The real reason, of course, is that he wanted to pick up the stock on the cheap.
According to my past observations, whenever a company goes public its value instantly magnifies, creating fabulous wealth for its founders. On the other hand, whenever a company goes private its intrinsic value is generally much greater than that reflected in the stock price—which gives the ultimate owner a windfall.
Apparently Jack Ma wants to run Alibaba the ways he sees fit, and privatization would give him control of the company. The price tag per share of Yahoo’s 40 percent stake in Alibaba—as valued in the recent Alibaba/Yahoo negotiation—must have been significantly higher than what Jack Ma offered to take his company private. Therefore Alibaba should take advantage of this window of opportunity to buy back the publicly held shares right away. Afterward, the buyback from the Yahoo negotiation may resume. Taking Alibaba private will instantly increase its overall value, as determined by its intrinsic value, rather than the publicly- traded stock price. The higher equity means the company can obtain more substantial financing to fund the buyback of its stocks from Yahoo. Presumably Jack Ma’s ambition is not only limited to running a Chinese Internet company, but also includes expanding his influence globally by acquiring a company such as Yahoo.
Now the big question: how do I personally benefit from these analyses? If I had purchased a substantial amount of Alibaba stock right after the announcement of Jerry Yang’s resignation, I would have made a very handsome profit (please refer to my debut blog from January 24, 2012 entitled “How I plan to profit from Jerry Yang’s resignation from Yahoo.”) Do current circumstances mean no more deal with regard to reshuffling ownership of Yahoo’s Asian assets? Will the price of Yahoo’s stock stagnate in the near future? Perhaps it is time to consult the I Ching Oracle, just as I did in my posts from February 6 and 15: “Dow Jones industrial to reach 14,000 by July 31, 2012” and “Dow Jones industrial to reach 14,000 by July 31, 2012 (continued).”
According to the energy charts of Jerry Yang and Jack Ma, their luck will be on the upswing in the months ahead. That is, until the beginning of August 2012, when they’ll begin a downhill trek that should last about half a year. When Jerry Yang resigned from Yahoo, his luck was actually on the rise. That’s why I believe his resignation was not forced on him, but was a deliberate strategic move on his part. He still owns a very substantial stake in Yahoo, and it’s highly unlikely that Yahoo stock prices will go down while his luck is rising. As a result, there should still be an excellent upside potential in Yahoo stock over the next few months. Perhaps Yahoo and Alibaba can strike a new deal.
After August 1, however, all bets are off.