Yahoo! Inc.: Notice of Application

Yahoo! Inc., an internet media company, owned 34 percent of the voting securities of Yahoo! Japan, which managed a Japanese version of Yahoo!’s web-directory service. These securities accounted for more than 40 percent of the value of Yahoo’s total unconsolidated assets, excluding government securities and cash, which, absent an exemption, could have made Yahoo! an investment company under § 3(a)(1)(C) of the Investment Company Act of 1940 (Company Act). Pursuant to § 3(b)(2) of the Company Act, Yahoo! applied to the Securities and Exchange Commission (SEC) for an order that would exempt Yahoo! from investment-company status by declaring Yahoo! to be primarily engaged in a business other than investing, reinvesting, owning, holding, or trading in securities, either directly or through majority-owned subsidiaries or controlled companies in a similar business. In its application, Yahoo! said it maintained short-term investments to manage its cash position (cash-management investments) but did not seek to profit by trading those investments. Yahoo! also said it made small, noncontrolling investments in other companies (strategic investments), not because of the potential to realize gains from increases in the companies’ stock prices but to develop or deepen business relationships with them. Combined, Yahoo!’s cash-management and strategic investments represented less than 15 percent of Yahoo!’s total assets. More than 90 percent of Yahoo!’s total unconsolidated assets, excluding cash and government securities, were attributable to noninvestment security assets, the ownership of its subsidiaries, and Yahoo! Japan, in which Yahoo! held a controlling interest. Yahoo! stated that it had always been focused primarily on providing internet-related products and services and that it held itself out to the public accordingly. In reports to the SEC and investors, Yahoo!’s operating income consistently figured more prominently than its investment income and the potential appreciation in value of its investments. Yahoo! maintained that its directors and officers spent very little time on investment matters and focused nearly all their attention on Yahoo!’s business operations. Yahoo! said that operating income, as opposed to investment income, comprised a majority of its gross income and that the vast majority of its revenues were generated from operating activities rather than its investments.