Mergers and Acquisitions
Yahoo and Alibaba Close Deal
Yahoo has agreed to sell back half of its interest in the Chinese Internet company Alibaba. In 2005 Yahoo acquired a 40% interest in the company, but since then relations between the two companies have become strained, especially as Yahoo failed to meet investors’ expectations. As part of an agreement reached earlier this year, Yahoo will sell another 10% of its Alibaba holdings back to the company when the company files an IPO, and the rest of its Alibaba holdings after the IPO. Yahoo’s remaining interest in Alibaba is valued at just over $8 billion, which accounts for more than 40% of Yahoo’s market value.
Fall IPO Calendar Filling Up
Take a look at iposcoop.com’s IPO calendar and you’ll find 14 anticipated initial public offerings in the next two weeks. Last week Trulia headlined the IPO’s, and was trading at 30% above it’s offering price last Thursday. The offering provided Trulia with $120 million in working capital, and the strong performance was not unexpected as the IPO was oversubscribed by a double digit factor. The fall run on IPOs is expected to raise as much as $4 billion for these companies going public. The largest offering is by Group Financiero Santander Mexico, which is trying to raise $2.7 billion.
Emmis Communications Seeking to Minimize Rights of Preferred Shareholders
Here is a cautionary tale for both investors and companies which enter into an agreement to issue and purchase preferred stock: In 1999 Emmis Communications issued preferred stock at $50/share with a yield of 6.25% to raise $144 million. The preferred stock dividend accrues yearly, even if no dividend is paid. If Emmis is taken over by private management, preferred stockholders have a right to redeem their shares for $50/share plus accrued dividends. Fast forward a decade plus, and the company has neither performed well nor issued any dividends. It’s market cap is $100 million, and the cost of redeeming the shares is $178.6 million. Emmis’ CEO wants to take the company private, but the preferred stock redemption is a major stumbling block. Emmis was able to use a “loophole,” or uncommon Indiana state law (Emmis is an Indiana corporation), to essentially gut the preferred stock of its rights. Basically Emmis bought some of the preferred shares’ voting rights, authorized additional shares which were put into a company trust, and voted the shares to amend the terms of the preferred stock. In Delaware, for example, this maneuver would not have been permitted as Delaware companies are not allowed to vote their own shares to prevent this exact type of scenario.