Yahoo weighs sale of core business, will not spin off Alibaba stake

Yahoo Inc is weighing a sale of its core business and will not sell of its stake in Alibaba Group Holding Ltd, CNBC reported, a sharp reversal that came after pressure from an activist investor. 

PHOTO: REUTERS

DEC 9, 20157:38 AM

[SAN FRANCISCO] Yahoo Inc is weighing a sale of its core business and will not sell of its stake in Alibaba Group Holding Ltd, CNBC reported, a sharp reversal that came after pressure from an activist investor.

Yahoo's shares were up nearly 2 per cent in after hours trading. Alibaba's shares rose 1.3 per cent.

Yahoo's core business consists of its popular Mail service and news sites as well as products like Tumblr and its advertising technology.

The CNBC report, which cited sources, did not disclose a possible price but said an announcement is expected on Wednesday. Analysts and bankers have estimated the unit could fetch between US$2 billion and US$8 billion, with many seeing US$4 billion as the likely price.

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Private equity, media and Internet firms are potential buyers, they said.

The latest news came after a three-day meeting of its board of directors last week. Yahoo faced pressure from activist investor Starboard Value LP to sell the core business rather than proceed with the planned spin-off of its US$30 billion stake in Alibaba.

Yahoo could not immediately be reached for comment.

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The US$8.6b Yahoo dilemma facing Japan's Masayoshi Son

Masayoshi Son has a US$8.6 billion dilemma on his hands. 

PHOTO: AFP

DEC 8, 20153:25 PM

[TOKYO] - Masayoshi Son has a US$8.6 billion dilemma on his hands.

His SoftBank Group Corp is the largest investor in Yahoo Japan Corp, controls several board seats and wields more power over the country's most profitable website than anyone. That's been possible because Marissa Mayer's Yahoo Inc, the next biggest shareholder with 35.5 per cent, has been happy to leave management to the nation's second-richest man.

Now Yahoo is said to be considering asset sales, including possibly disposing of its US$8.6 billion stake in the Japanese portal, which may force Mr Son to spend money to maintain his grip on a company he already effectively controls. Those resources could be better used to shore up his struggling Sprint Corp or other investments without adding to SoftBank's existing US$109.4 billion in long-term liabilities.

"SoftBank faces three options: issue debt and buy it itself, hope someone friendly steps in to help or, failing all that, have the stake sold in the open market," said Masamitsu Ohki, the chief portfolio manager at Fivestar Asset Management Co. "Selling in the open market would be awful."

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With Ms Mayer failing to deliver on a turnaround after three years at the helm, Yahoo's board is considering options to cope with a slump in growth. That includes an earlier plan to spin off its shares in Alibaba or sell other assets, such as its core Internet search and portal business and the Yahoo Japan holdings. No decision was announced after a meeting last week.

Despite controlling more than a third of Yahoo Japan, Ms Mayer's company has mostly kept a hands-off approach. Yahoo leases its brand and technology while letting local management call the shots, a former executive, Susan Decker, said last year.

That's given Mr Son leeway to steer Yahoo Japan closer to SoftBank, including installing President Nikesh Arora as chairman, allowing the companies to share customer information.

SoftBank, which owns 36.4 per cent of Yahoo Japan, said in November it plans to strengthen collaboration next fiscal year. The portal made up 22 per cent of SoftBank's operating profit in the six months through September.

For Yasuaki Kogure, a hostile new shareholder could challenge that, making Mr Son the most likely candidate to buy the stake should Ms Mayer sell it. Outsiders would require more consensus among shareholders, making management decisions within Yahoo Japan more difficult.

"Having the shares fall in the wrong hands would be the biggest problem, and that's what they want to avoid," said Mr Kogure, chief investment officer at SBI Asset Management Co, which holds shares in both SoftBank and Yahoo Japan, according to data compiled by Bloomberg. Still, if it was that simple, "they would have bought it a long time ago. Yahoo! Inc has probably approached them about it already in the past."

Another potential hurdle is that combining stakes the size of SoftBank's and Yahoo's may trigger a mandatory bid for the rest, an issue Mr Son could overcome by diluting the stock via a small offering, said Nicholas Benes, representative director of the Board Director Training Institute of Japan.

Alternatively, if SoftBank has to make an offer it could do so at a low price. If that's accepted, "SoftBank would be very happy. And even if it has to be delisted as a result, from SoftBank's point of view, the price was still low," Mr Benes said.

Issuing bonds through Yahoo Japan, which has almost no long-term debt, to fund a stock buyback is possible, as is relying on its US$4.5 billion cash pile to cover some of the cost. Still, as a consolidated subsidiary of SoftBank, changes to Yahoo Japan's finances would be accounted for on SoftBank's balance sheet.

Yahoo Japan would "always consider the best options" for buying back its shares, Masaki Hanyu, a Tokyo-based spokesman, said Monday. A SoftBank spokeswoman, Hiroe Kotera, declined to comment.

Shares of Yahoo Japan rose 0.8 per cent at the close in Tokyo, while SoftBank slipped 0.7 per cent and the Nikkei 225 Stock Average dropped 1 per cent. The portal has gained 21 per cent this year while SoftBank is down 12 per cent.

Despite the potential financial hurdles, Fivestar's Mr Ohki says Mr Son may still go ahead with a purchase because it plays into SoftBank's longer-term ambition of expanding into e-commerce.

In addition to Yahoo Japan, SoftBank is the biggest shareholder in Alibaba Group Holding Ltd and spent US$1 billion this year for a stake in South Korean online retailer Coupang. The investments are testament to Mr Son's goal of dominating online shopping.

"Mr Son is probably ultimately eyeing the e-commerce business, and Yahoo Japan has pretty good infrastructure for that," Mr Ohki said. "Everyone is focusing on their debt because that's the hurdle, but if they can manage that impact, then this deal might be very, very important in terms of their e-commerce ambitions."

BLOOMBER
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China's Huawei eyes No 3 global spot for data storage by 2018

DEC 8, 20155:30 PM

[HONG KONG] China's Huawei Technologies aims to become the world's third-largest data storage provider by 2018 as it takes market share from leaders such as EMC Corp and International Business Machines Corp.

"We don't want to just be No 1 in China...We want to be at least the top 3 in the world by 2018," Huawei's storage product line president Fan Ruiqi told Reuters, referring to the global market for data-storage, which was worth US$5.3 billion in the second quarter.

Huawei had a 3.3 per cent share of the global enterprise storage sector in the second quarter, a distant seventh after market leaders EMC's 32 per cent, IBM's 11.7 per cent and NetApp Inc's 10.6 per cent, according to market research firm Gartner.

REUTERS

China offers stricken steelmakers lifeline with export tax cut

China will cut export taxes on steel billet and pig iron from the start of 2016, the finance ministry said on Wednesday, the latest move by the world's top steel producer to erode a domestic glut and offer a lifeline to the stricken industry. 

PHOTO: BLOOMBERG

DEC 9, 20152:00 PM

[BEIJING] China will cut export taxes on steel billet and pig iron from the start of 2016, the finance ministry said on Wednesday, the latest move by the world's top steel producer to erode a domestic glut and offer a lifeline to the stricken industry.

Exports of the two products are relatively modest, but the move will likely fuel concerns that the world's biggest consumer of industrial raw materials is exporting its excess output to a saturated global market, accelerating a price rout. "This kind of strategy is aimed at redirecting this oversupply in China to other countries," said Helen Lau, analyst with Argonaut Securities in Hong Kong.

As part of a raft of measures aimed at boosting economic growth in the world's second-largest economy, the ministry said it will cut the 25 per cent export tariff on billet and pig iron to 20 per cent and 10 per cent respectively from Jan. 1.

The move underscores the deepening crisis in the world's biggest steel industry as the country's economic growth slows, leaving stricken mills to struggle with plunging prices, waning demand from real estate to shipbuilding, and tight credit. Many have gone bankrupt or cut output.

Chinese steel mills have cut shipments of both products since 2008 when duties were raised to current levels. In January-October, China exported 141,659 tonnes of pig iron and 5,367 tonnes of steel billet, said Kevin Bai, analyst at CRU in Beijing.

Preliminary customs data on Tuesday showed China's shipments of steel products topped 100 million tonnes for the first time in the first 11 months of the year.

Two exporters in China said the tariff cut was too small to help boost exports, but it will likely escalate trade tensions with Europe and the United States, which have accused the country's mills of deliberately dumping surplus production.

Market participants were surprised by the move, coming just weeks after authorities hit back at criticism from abroad about its support for the industry and saying Beijing did not set out to encourage steel firms to boost exports.

As part of Wednesday's statement, the government said it would also eliminate export tariffs on phosphoric acid and ammonia and cut taxes on some energy raw materials, but it did not identify which materials would be subject to the cut.

It kept tariffs on naphtha, jet kerosene, diesel, fuel oil, ethylene/propylene, propane and benzene unchanged. It also kept base metals and nickel pig iron tariffs unchanged.

REUTER
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China's banks that need over US$600b in new debt go abroad

DEC 9, 20152:18 PM

[SINGAPORE] Chinese banks, already the largest issuers of bonds to build capital buffers, are looking beyond the savings of the nation's 1.4 billion people for more funds as they grapple with mounting bad loans.

The nation's banks may account for about half of at least US$100 billion in dollar notes sold by Asian lenders to meet new capital rules over three to five years, according to Barclays Plc. China's lenders need to sell as much as US$222 billion of notes in any currency that comply with Basel III rules and US$379 billion of securities that meet rules unveiled by the Financial Stability Board last month, Commerzbank AG estimates.

The Asian issuance "would be too large a size for domestic markets to absorb," said Avinash Thakur, managing director of debt capital markets for Barclays in Hong Kong. "That's why these banks in the next phase will start coming to look internationally." Chinese lenders are struggling with the biggest pile of bad loans since 2008 as the weakest economic growth in a quarter century fuels defaults. The banks will face pressure in the near term to issue more so-called Additional Tier 1 funds that count toward the new capital rules as they grapple with "ongoing balance-sheet growth and slowing profitability," Fitch Ratings said in a Dec 7 report.

International issuance could entail higher financing costs. Bank of China Ltd. sold perpetual notes that count as Tier 1 capital at home in March with a coupon of 5.5 per cent. That compares to a 6.75 per cent rate on securities sold internationally last year.

China Construction Bank Corp may price AT1 securities in dollars Wednesday, according to a person familiar with the matter. That comes after Bank of Communications Co become the only Chinese lender to sell such securities earlier this year.

The four largest lenders by assets are from China and since the beginning of 2014 the country is also the biggest producer of bonds that count as capital under global banking rules established after the 2008 global financial crisis.

Biggest Issuers  Lenders in the world's second biggest economy sold the equivalent of US$146 billion of such securities since Jan 1, 2014, more than all the securities sold by French and US lenders combined in the same period, respectively the second and third biggest issuers of Basel III compliant notes, Bloomberg data showed.  About 90 percent of these bonds were sold in the local market, which is now the second largest in the world at about US$5.6 trillion. Even that may not be enough to absorb all the upcoming issuance, according to Barclays and Commerzbank.

"The China Banking Regulatory Commission has to approve issuance quotas both offshore and onshore and I think the banks will try to maximize their allowance in both markets," said Xuanlai He, the Singapore-based credit analyst at Commerzbank. "There is no optimal funding strategy. We call it maximum funding strategy." Four Chinese lenders will be required by 2025 to sell bonds that can be written down in case of bankruptcy adding up to 16 per cent of their risk-weighted assets, the FSB ruled last month in its rules on total loss-absorbing capacity. That would require them to raise at least US$500 billion in new bonds, according to the estimates of bank capital-focused hedge fund manager Algebris Investments Ltd.

"In China, the TLAC shortfall is significant," said Richard Surrency, the Singapore-based managing director of capital strategy at Algebris. "Chinese banks are in the 'extraordinary' bucket," in terms of their funding needs to meet the new rule, he said.

BLOOMBER
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Embattled Najib seeks unity among party elites 

Malaysian Prime Minister Najib Razak appealed for unity in the ruling party as thousands of members met in the capital amid tensions over a funding scandal that have festered for months. 

PHOTO: AFP

DEC 9, 20152:43 PM

[KUALA LUMPUR] Malaysian Prime Minister Najib Razak appealed for unity in the ruling party as thousands of members met in the capital amid tensions over a funding scandal that have festered for months.

The political temperature is much higher than past United Malays National Organisation meetings, Mr Najib - who is party president - said on Facebook before delivering a closed-door speech late Tuesday to the annual gathering. UMNO's women's group met Wednesday with its leader echoing calls to stay united.

"We want the image that we project of the party to be of a party that is in charge, that we are a responsible party that can safeguard our interests," Mr Najib said. 

The real picture is murkier as Mr Najib fights to stay in power after revelations in July that 2.6 billion ringgit (S$856 million) appeared in his private accounts before the 2013 general election. He's faced accusations of wrongdoing by the opposition and some UMNO members and calls to quit. The turmoil has periodically dented the ringgit.

The gathering of officials from UMNO, a party that has its power base rooted in the ethnic Malay majority, is being closely watched for whether divisional chiefs continue to support Mr Najib. The powerful nearly-200 strong grouping has generally backed him, though that endorsement may be eroded if Mr Najib is seen as a political liability heading into the next general election, which must be held by 2018.

AGAINST TIDE

UMNO, in office since independence in 1957, won the 2013 ballot with its smallest margin yet, losing the popular vote for the first time. The congress should be a platform for UMNO to bolster its commitment to staying relevant, Mr Najib said.

The head of the women's faction led female delegates Wednesday in an oath expressing support for the premier, though youth wing chief Khairy Jamaluddin said party members need to occasionally "go against the tide." Mr Khairy, who is youth and sports minister, said UMNO members shouldn't stay silent or avoid asking for explanations when there are "big allegations like corruption, fraud and abuse of powers."

"If there are allegations, they should be answered quickly and comprehensively," he said. "Prove that we are transparent and practice good governance. Show everyone that there is nothing we want to hide."

OUSTED DEPUTY

Among those seeking to oust Mr Najib are UMNO deputy president Muhyiddin Yassin and former Prime Minister Mahathir Mohamad. Mr Najib dumped Muhyiddin as deputy premier in July. The UMNO deputy typically officiates the opening of the women's and youth wings at the meeting, but Mr Muhyiddin didn't do that on Wednesday.

Mr Najib arrived at the UMNO congress Tuesday night to the beating of traditional drums and accompanied by Deputy Prime Minister Zahid Hamidi, a party vice president. Mr Zahid on Wednesday recited a Malay poem saying a raft needs a strong rope to hold it together and keep it buoyant, and even if some bindings snap off it must remain afloat.

TERM LIMITS

Mr Muhyiddin on Monday called for term limits for the presidency of UMNO, saying "absolute power corrupts." There are no such restrictions now. Mr Najib should step aside as prime minister until investigations of the funding scandal are complete, Mr Muhyiddin added. Dr Mahathir, who was the country's longest-serving leader, said Monday he wants to topple Mr Najib but not the government.

Mr Najib has said the funds in accounts that have since been closed were donations from the Middle East and not public money, and were used for the party and community.

"The amount donated to my personal account was the wish of the donor," Mr Najib wrote on Facebook. "But don't misunderstand. Just because the account was in my name, it doesn't mean the money was for my personal use."

STATE COMPANY

The donor gave the funds without expecting anything in return and didn't see it as a bribe, he said.

During his address Tuesday, Mr Najib talked about the country's economic challenges, troubled state investment company 1Malaysia Development Bhd. and the donations he received, Mr Zahid told reporters after the speech. Delegates clapped at the end, he said. The remarks were well-accepted by the crowd, said Defense Minister Hishammuddin Hussein, another UMNO vice president.

The government has sped up efforts to pare down debt at 1MDB, whose existence has been dogged by controversy and led to criticism of Mr Najib, who chairs its advisory board. Investors have periodically dumped Malaysia's stocks, bonds and currency this year.

"If UMNO cannot provide leadership and set the example of a clean and honest leadership, especially over Mr Najib's twin mega scandals, then UMNO should be replaced" at the next election, opposition Democratic Action Party leader Lim Kit Siang said Monday.

BLOOMBERG

Oil hits new multi-year lows as Brent dips below US$40

Oil prices dipped to new multi-year lows on Tuesday as last week's do-nothing Opec meeting continued to weigh on the petroleum market.

PHOTO: BLOOMBERG

DEC 9, 20157:00 AM

[NEW YORK] Oil prices dipped to new multi-year lows on Tuesday as last week's do-nothing Opec meeting continued to weigh on the petroleum market.

US benchmark West Texas Intermediate for January delivery shed 14 cents at US$37.51 a barrel.

Brent North Sea oil for January delivery dropped 47 cents to finish at US$40.26 a barrel in London.

Earlier Brent had fallen below US$40 for the first time since February 2009. It was the second session in a row the two benchmark contracts closed at their lowest levels since that month nearly seven years ago.

Oil prices tumbled early in the session after weak Chinese trade data underscored worries about slowing global growth. But prices rallied back into positive territory part of the day, a sign some traders thought a bottom had been reached.

Oil prices have been on the defensive since Friday, when the Organisation of the Petroleum Exporting Countries took no action on production to address a supply glut that has depressed prices for more than a year.

Analysts have criticised the outcome as a sign of discord within the cartel.

"After the Opec decision - or should that be indecision - last week, the question was not if but rather when this would occur," said ETX Capital analyst Daniel Sugarman, in reference to Brent's latest slide below US$40.

Analysts said the market could be primed for another retreat following Wednesday's release of US oil inventory data. The report is expected to show higher crude inventories and supplies of home-heating oil, due in part to unseasonably warm weather that has depressed heating demand in the US.

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