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Yahoo's Most Attractive Asset Is The One That Yahoo Can't Ruin If It Tried

Yahoo Japan is actually a good business, maybe because Yahoo doesn't touch it.

As the hypothetical "bidding war" around Yahoo continues to ratchet up - or not - it is still very unclear what Marissa "Evita Breadsticks" Mayer's purple kingdom is actually worth. Or even what it is at this point.


We know that there's the Alibaba stock, but that's not in the mix... and then there's the search and email business... and the news/entertainment division destroyed by Kim Kardashian's butt. 

But there are a few smaller things from which Yahoo makes a buck or two, and some of them are tangled and strange, but worth some pretty nice money...

Meet Yahoo Japan:

In 1996, Yahoo struck a deal with Softbank to launch Yahoo Japan together, taking a 35% minority stake in the joint venture.

According to BI, SunTrust analyst Robert Peck has done some digging ad figured out that Yahoo Japan is a sweet little piece for anyone looking to buy what they think Yahoo is. And there a some key reasons why...

But as part of the deal, Yahoo also signed a royalty agreement to collect 3% of Yahoo Japan's gross profit every year. That royalty payment was worth about $90 million last year alone.

Nice. How does Yahoo Japan throw of that kind of coin?

Yahoo has no role in running Yahoo Japan whatsoever. 

Ah, okay. How well are things going over at Yahoo Japan without meddling from Marissa and what's left of her team?

The best part about the Yahoo Japan royalties is that it's almost pure cash and it doesn't cost anything for Yahoo other than providing the rights to use its brand in Japan. There was some technical support involved initially, but that's mostly gone, Peck says. Yahoo Japan's main search engine, for example, now licenses Google's search technology instead.
On top of that, Yahoo Japan continues to grow. As its gross profit grows, the royalty payments will only expand.
Last year, Yahoo Japan generated $3.5 billion in revenue, up 5% from the previous year, and the same size of revenue Yahoo US expects to hit this year. It also saw an impressive 46% operating margin, marking the 18th straight year of record-high revenue and profit, according to its annual report. It forecast another high single-digit growth across the board for this fiscal year.

Wow. With those numbers, it's almost shocking to see the word "Yahoo" anywhere nearby.

But if SoftBank is the one making this thing hum, why don't they just go and buy Yahoo Japan?

There's not much Softbank could do to get out of this deal unless it buys back the 35% stake Yahoo US holds in Yahoo Japan.
But SunTrust's Peck noted that the royalty itself could be sold separately, and in that case, Softbank would be first in line to make a bid.

Oh, so...

"We've heard that Softbank would be interested in the Yahoo Japan shares as well as this royalty right, but I don’t think they’re interested in running," Peck said.

Now we've given Marissa her fair share of guff in the last few months, but even we've got to tip our hats to this bargaining position:

"Dear SoftBank,

If you want your Yahoo Japan business back without having to pay me an annual fee for the privilege of using our useless name, you're going to have to drop about $6 billion to buy all of the other things we've set fire to and ruined in the past few years.

K thanks bye - Marissa."

Now that's how you dobusiness.

Yahoo's bidding price could get a big boost because of a business it has nothing to do with [BI]



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