Free enterprise at work.
Board members for Yahoo, one of America’s most iconic tech companies, met last week to discuss breaking itself into pieces rather than pay taxes on the shares it owns of the massively successful Chinese internet retailer Alibaba. Wall Street fluttered with excitement upon hearing the news. This is the state of American business.
Yahoo is actually made up of three profitable component parts plus some cash in the bank: Yahoo’s core business, the shares it owns in Yahoo Japan and the shares it owns in Alibaba. All three are successful enterprises that are worth billions of dollars individually. Estimates vary but Yahoo’s core business is likely worth somewhere between $3-4 billion. Meanwhile its shares in Yahoo Japan and Alibaba are worth approximately $8.7 billion and $32.6 billion respectively. Add another $6.8 billion in cash minus $1.4 billion in debt and the value of the company should be close to $50 billion. A pretty penny.
But because Yahoo, like all companies and people everywhere, must pay taxes if it wants to sell the shares of Yahoo Japan or Alibaba that it owns, the tax liabilities significantly reduce the company’s overall market capitalization to a mere $33.8 billion, barely higher than the value of the Alibaba shares on their own. This makes the company’s shareholders sad.
It’s understandable, most people and institutions would prefer to pay lower taxes if they have the chance. And some of the richer amongst us have the resources and wherewithal to invest in complex schemes to achieve these tax-free ambitions. But for the most part, we understand that taxes pay for things all of us need like hospitals, education for tech employees, fire trucks and research and development grants to help invent things like, say, the internet. So even though we don’t enjoy having less money, we tolerate it and we work harder so we can make more money.
But Yahoo’s shareholders seem to be asking: why invest what it takes to build a more profitable and valuable business when you can just concoct a scheme to avoid taxes? They’d apparently rather do just about anything, up to and including busting up a profitable, valuable business, than pay the taxes on the sale of shares in the even more massively successful Chinese company they own.
Makes you proud of American ingenuity and business leadership doesn’t it?