The Short BABA and Long YHOO Trade

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The Short BABA long YAHOO trade


Long time ago some funds put this trade on hoping for a tax free spin off of BABA. The spin never happened so of course the trade is in the red.

A few funds have kept the position hoping YAHOO finds a timely way to tax efficiently return the value of their BABA holding to shareholders. The trade has ongoing hard costs and opportunitie cost.

Example showing the problem: YAHOO cashing out their BABA shares (possibly in a private deal at a discount to the market price) and being taxed on the massive gain; then paying most of that money to shareholders who will pay tax on this money is something they would not do.

What are the chances YAHOO finds a way to tax efficiency unlock their BABA value in a timely way?

...the market is saying not likely.
 
I have followed this story for 8.5yrs and it took all of last year just to get an IRS ruling on their Aabaco spin-off so while they technically didn't reject it there is zero chance, the IRS, won't fight for billions in tax revenue. Joe Tsai, on CNBC during BABA earnings, assumed there would be massive taxes, but as far as I know there wouldn't be as long as BABA uses their own shares. Put it this way they wouldn't have sold the core if they could have saved 10-15B in taxes. A win-win is split the savings with BABA but they have no interest as it made sense with BABA in low $60's not mid-90's where it sits now. Yahoo has no incentive cause if they did sell BABA you'd have a cash rich mutual fund made up of slow growth Yahoo Japan.
 
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