Yahoo announced on Wednesday that it has scrapped plans to spin off its $31 billion stake in Chinese internet giant Alibaba. The company will instead transfer its core business, as well as its stake in Yahoo Japan, to a new company.
That means there will be two separate companies; shareholders will receive stock of the new spinoff firm.
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In a press release, the chairman of Yahoo’s board of directors Maynard Webb said the company was “concerned about the market’s perception of tax risk, which would have impaired the value of Aabaco (the planned spinoff company that would hold Yahoo’s Alibaba shares) stock until resolved.”
The deal to spin off Yahoo’s existing business could take a year or more and will require shareholders’ approval as well as clearance from the US Securities and Exchange Commission (SEC).
The move announced today is largely driven by the tax implications of spinning off either Yahoo’s core business or its piece of Alibaba’s pie. A hedge fund called Starboard Value said in November that selling Yahoo’s main assets would incur less taxes than the $10 billion that the company would have to pay if it sold its 15 percent stake in Alibaba. Plus, the IRS declined to pre-approve a tax-free transfer of that stake to a new company.
As it stands, the company’s stake in Yahoo Japan is worth about $8.5 billion, while its core business is estimated to be worth about $3.9 billion. Spinning off the latter should make it easier to sell to a new owner.
Although CEO Marissa Mayer – who moved from Google in 2012 – failed to rescue Yahoo in the past three years, it still has a massive audience in many countries across the globe, and the company might well attract buyers once the deal is complete.
➤ Yahoo Provides Update on Planned Spin Off of Remaining Stake in Alibaba Group [Yahoo Investor Relations via The New York Times]