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Why Yahoo! Investors Shouldn't Shut Up: Opinion

Stocks in this article: YHOO

NEW YORK ( TheStreet) -- Last week in TheStreet, I wrote a column that was critical of a decision by new Yahoo! (YHOO) CEO Marissa Mayer.

Mayer released an 8-K recently that said she might not return to shareholders any of the cash coming to the company from the pending $7.1 billion sale of half of Yahoo!'s stake in Alibaba.

Rocco Pendola wrote a response to my column saying I was being impatient and a pest.

First, Rocco described as "short-termist," "entitled" and focused on "instant gratification" my call for Mayer to follow through on Yahoo!'s past statement that it would pay out a large part of the proceeds from the Alibaba sale.

The company will get $4 billion after taxes from the sale by November, and it had telegraphed that most of this was going to go back to shareholders (although it never clearly defined "most," which would have allowed Mayer to dip into it for M&A purposes).

Importantly, Yahoo!'s also in the midst of selling its stake in Yahoo! Japan back to Softbank. Mayer would know the current status of the talks, but they appear to be close. Assuming Yahoo! can close the deal in the next three months, the cash-rich split deal would see Yahoo getting $3 billion in cash back tax-free and $1.5 billion worth of "other assets" tax-free.

Those assets can be of Yahoo's (Marissa's) choosing. Essentially, that $1.5 billion in assets is an M&A deal. All this is selected before the deal is announced, and the cash and assets are available from day one to Yahoo! (although the IRS does have to officially bless the deal later).

So chances are high that Yahoo! could/will get its hands on the cash and assets from the Yahoo! Japan deal sooner than it will the cash from the Alibaba deal.

Therefore, it makes no sense that Mayer issued that recent 8-K. The company essentially is going to get $4.5 billion for M&A from Softbank sooner than it will get $4 billion from Alibaba.

In my view, using $4.5 billion for M&A and $4 billion for stock buybacks makes eminent sense. I probably would want to see more spent on buybacks, but it really all depends on the potential acquisition targets as there are many good ones out there. Assuming Mayer finds some good ones -- and her track record says that she will -- I could be convinced that $4.5 billion spent on M&A and $4 billion on buybacks was fair.

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