Hey George,...You may have missed this note from Bloomberg on the Yahoo petition to be exempted from the 1940 Investment Company Act:
Message 13301030
To: Jay Chen who wrote (4647)
From: Edwin S. Fujinaka Tuesday, Mar 28, 2000 9:54 PM ET
Reply # of 4667
So Tokyo is already up the 5000 yen limit to around $860. I guess it will take at least another day to match the $900 closing price here in the US. This could just be part of the normal oscillations in price after the last big runup and down and we have no assurance that it portends the beginning of another run (but of course we all hope so).
In any case, Bloomberg posted this story. It has to do with that pesky "Investment Company Act of 1940". Although the article is primarily about Yahoo, I believe that it also may apply to Softbank and the reluctance to issue Softbank ADRs. Interest seems to be building in changing this 60 year old law to reflect the new realities of the internet. I think that Divine Interventures (DVIN) may lead the political charge to modify the law so they can operate a little more freely. If this develops, perhaps Yahoo and Softbank will be able to operate a little more freely. CMGI has a stake in DVIN and it may be partly in support of DVIN's proposed effort to have the laws changed. Wouldn't it be interesting if Softbank could issue new shares to an American Company who would hold these new shares as backing for a Softbank ADR that could trade freely in the US? Perhaps the new ADR issue might even be larger than the 300 billion yen envisioned by Softbank and the American issuer of the ADRs might even need to acquire some additional shares of Softbank on the open market in Tokyo. Just daydreaming here <G>. I wish I understood these issues a little more clearly. :
quote.bloomberg.com.
Yahoo! Requests SEC Exemption From Regulations for Mutual Funds
By Miles Weiss
Yahoo! Requests SEC Exemption From Regulations for Mutual Funds
Washington, March 28 (Bloomberg) -- Yahoo! Inc., the leading
Internet directory, wants the Securities and Exchange Commission
to exempt the company from regulation as a mutual fund, in a
request that could set a precedent for other Web businesses.
Yahoo, which at first glance doesn't have much in common with
fund managers such as Fidelity Investments, has stock holdings in
other Web companies that soared to such values they represented at
least three-quarters of Yahoo's total assets. For this and other
reasons, Yahoo risks falling under the legal definition of a
mutual fund.
That's a prospect no regular operating company wants. Mutual
funds must live with different regulatory restrictions such as
limits on debt they can incur and a ban on issuing employee stock
options. And if companies don't register as mutual funds when they
should, they can face sanctions such as being barred by the SEC
from selling securities or engaging in interstate commerce.
``You can't go to the bathroom without SEC permission,' said
Alan Rosenblat, a lawyer with the firm of Dechert Price & Rhoads
who formerly worked in the SEC's investment management division.
Besides easing regulatory concerns, if Yahoo's request for an
exemption is successful it would free the company to invest excess
cash -- more than $790 million as of last Sept. 30 -- in stocks
and other investments. Until now, as a cautionary move, Yahoo has
kept that excess cash in government securities, which aren't
counted as investments under the mutual fund law.
Yahoo and other Internet companies that have made successful
investments in new Web business face regulatory questions because
the 1940 Investment Company Act -- the law that governs fund
managers such as Fidelity and Vanguard Group -- defines a mutual
fund as a company with at least 40 percent of its assets in
investments rather than operating businesses.
Japanese Venture
Yahoo requested the exemption from the SEC after a single
holding -- its 34 percent stake in the Yahoo! Japan Corp. venture
with Softbank Corp. -- grew to 75 percent of Santa Clara,
California-based Yahoo's assets at the end of 1999's third
quarter. Yahoo Japan's stock has almost tripled since then. Its
shares have soared more than 50-fold since the beginning of 1999
and still trade for more than $520,000 apiece after a 2-1 stock
split this week.
Under the investment company law, investments are defined as
marketable securities and non-controlling stakes in other
companies. Stock that represents control of another company
doesn't count toward the 40 percent investment threshold that can
trigger mutual fund regulation.
Yahoo and many other companies that do business in
cyberspace, though, have few hard assets such as factories on
their balance sheets, while many own stocks in other online
companies that have blossomed into very valuable investments. That
combination has pushed some Internet operators over the regulatory
line separating a regular company from an investment fund.
The SEC does have the authority to issue exemptions to
companies that can show they're primarily engaged in running a
business rather than making investments, notwithstanding the 40
percent limit.
`Strategic' Holdings
Yahoo's bid for an SEC exemption from mutual fund rules could
affect other Web companies because Yahoo argues it primarily has
``strategic' stock holdings made to cement relationships with
business partners, expand its offerings, and develop new products
or services. Those types of holdings are different than mutual
fund investments aimed simply at generating profit for fund
investors, and therefore shouldn't be counted against the 40-
percent investment threshold, Yahoo contends.
If the SEC agrees, the agency's position could provide relief
down the road for other Internet companies that have large amounts
of cash and strategic stakes designed to help develop their own
businesses. Amazon.com Inc., for example, has investments in
auctioneer Sotheby's Holdings Inc., Audible Inc., which delivers
audio books online, and Kozmo.com Inc., which provides one-hour
delivery of videos, compact discs and other products ordered via
the Internet.
Yahoo's situation isn't exactly the same as that of some
other Internet companies. That's important because SEC
determinations on the need to register under the Investment
Company Act depend on the individual facts presented in each case.
The principles behind the agency's decisions in individual cases,
though, can give guidance to others.
`Simply A Technicality'
Yahoo says its business operations show it isn't a mutual
fund, with management operations and revenue all tied to running a
Web navigation site, not making investments.
``It's simply a technicality for us,' said Diane Hunt, a
Yahoo spokeswoman. ``We just want to make sure we are exempt from
the (Investment Company) act so we do have more flexibility.'
Nevertheless, the request is more than a formality: Yahoo
withdrew a similar application in July 1998 because the SEC was
going to deny the exemption, according to the most recent filing.
Yahoo's latest application argues that the company should now be
eligible for an exemption, citing the growth of its Internet
business.
The biggest question involves whether Yahoo can say it
``controls' Yahoo Japan and thus can count that stake as an
operating asset, rather than an investment that counts toward the
40 percent threshold. While Yahoo's 34 percent ownership would
normally qualify as a controlling stake, Softbank Corp. holds an
even larger share of Yahoo Japan -- 51 percent -- and therefore
can be considered the controlling shareholder.
Other Companies
Similar situations have already arisen for companies such as
Safeguard Scientifics Inc., which owns a 14 percent stake in
Internet Capital Group Inc. Safeguard filed an application for an
exemption under the Investment Company Act last month after
Internet Capital shares rose as much as 35-fold from their initial
public offering of $6 last year, adjusted for a recent stock
split.
The SEC last week ruled that Safeguard controlled Internet
Capital for purposes of the Investment Company Act. That means
that Safeguard won't have to register as an investment company.
CMGI, an Andover, Massachusetts, company that takes stakes in
Internet businesses and helps them grow, ran into a similar
quandary when its holdings began to skyrocket in Lycos Inc., and
coincidentally, Yahoo.
CMGI took a different tack to solving its problem, using a
series of acquisitions to gain majority control of companies, thus
increasing the proportion of its portfolio that counts toward
operating businesses rather than investments.
``Basically we have been buying companies at an absolutely
furious pace,' said Bill Williams, CMGI's general counsel. ``Our
percentage of bad assets -- interests in companies where we don't
have control -- is dropping dramatically.'
Yahoo chose to apply for an exemption rather than buy up
other companies. Thus its fate rests with the persuasiveness of
the argument that Yahoo's law firm made to the SEC.
``The staff generally tries to cooperate with people who are
in this fix,' if warranted by the facts in the application,
Rosenblat said. ``They have enough to do without having to worry
about these things.' |
