Yahoo and Alibaba

Sometimes things are not as they seem.

The world business news is full at the moment of the news that Yahoo is to sell itself, or split itself up or not. All so it can realise the value for shareholders in its stake in Alibaba - the chinese export portal ( I never understood this success, everything I have ever looked at in Alibaba is 100% fraudulent, must just be me who see this).

As with many things mergers and acquisitions in 2015, the whole deal is really about corporate tax avoidance. Somehow or other Yahoo wants to avoid paying any corporate tax on a $35 billion share sale and has come up with various different ways to make this happen. The latest one is the to do the opposite of the last idea but for the same result, paying no tax.

Pfizer/Allergan is the same side of the coin, with a completely real merger created not to drive synergies but save taxes.

Ho hum to all that.

The really interesting thing I have learned though, although can find precious little English language backing, is that Yahoo does not actually own Alibaba shares. Yahoo owns shares in the Hong Kong Listing of Alibaba, which in turn owns the US listing shares. According to Yahoo it owns 35% and has major voting rights. One piece of evidence I can show to prove all this is it took 2 years for Yahoo to increase its stake in Albibaba which is put down to 'deal complexities.'

In reality, the entity listed on the Hong Kong exchange is not the company that owns Alibaba group of companies. It is instead a special purpose vehicle that owns the commercial rights to those companies and thus the profit cashflow.

So to some extent, so what. However, would you be pleased to think you owned a chunk of Tesco plc only to discover that you did not. You owned an SPV with commercial rights. What would happen in a country with limited law around property rights if the actual owners decided not to pay the SPV?

Just as well China has such a developed and transparent legal system so that this may never be tested.