Will Alibaba buy Yahoo! Inc. (Nasdaq: YHOO)?
That's what Money Morning's Chief Investment Strategist Keith Fitz-Gerald thinks might happen following the Alibaba IPO. And while it might seem far-fetched at first, according to Fitz-Gerald, that type of deal makes perfect sense.
"The IPO, when it hits, will give Alibaba tremendous leverage in global markets, not to mention a ginormous cash war chest," Fitz-Gerald said. "It's only logical that the company goes hunting for acquisitions that boost customer penetration and revenue at the same time. I've got to believe the shopping list includes Yahoo itself."
It's been widely estimated that the Alibaba IPO could be the biggest U.S. IPO since Facebook Inc.'s (Nasdaq: FB) $16 billion IPO in 2012. But that number keeps climbing higher as Alibaba continues an acquisition spree. The Chinese firm has spent $3.5 billion on its last seven acquisitions and has purchased more than 100 U.S. patents.
But Yahoo would be one of Alibaba's most valuable acquisitions to date and would be a huge boon for a company determined on spreading its global influence.
The two already have an established connection, as Yahoo owns a 24% stake in Alibaba. Because Yahoo is expected to sell a large portion of those shares through the initial public offering, YHOO stock is considered one of the best ways to invest in Alibaba before the IPO date.
"If I were Alibaba Chairman Jack Ma, I would use the IPO to take Yahoo out of the picture," Fitz-Gerald said. "Then I would immediately lateral applicable IP - intellectual property - to my Chinese customer base so that I could end run my Chinese competitors, Tencent and Baidu, at the same time."
"Shortly thereafter, I would flood the pipe in the other direction, using Yahoo as a springboard for my Chinese customers," Fitz-Gerald said.
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A major deal like this would take time, and Fitz-Gerald cautions not to expect one immediately following the IPO. But the potential for this deal is too big to ignore.
Watch Fitz-Gerald discuss Alibaba buying Yahoo with FOX Business' Stuart Varney in the accompanying video.
What do you think about Alibaba possibly buying Yahoo? Let us know on Twitter @moneymorning using #Alibaba.
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