Yahoo’s Keeping Its Alibaba Stake—And Spinning Off the Rest
Early Wednesday morning, Yahoo’s board answered a question that had pestered the company months, if not years. The announcement confirms what had been previously reported, and loudly demanded by activist shareholders: Yahoo will spin off its core Internet business, including a sizable stake in Yahoo Japan, but will hold onto its lucrative stake in Alibaba.
In recent weeks the will they or won’t they dynamics of Yahoo’s future finally peaked on a Wall Street Journal report that the company’s board would seriously consider spinning off its $31 billion stake in popular Chinese e-commerce company Alibaba. Mounting concerns over the tax implications of such a deal—earlier this year, SunTrust analyst Robert Peck pegged the amount at $19 billion—has scuttled that plan, at least for now.
“In consideration of developments since the original spin off plan was announced and after significant deliberations, we are suspending work on the Aabaco [Yahoo’s Alibaba assets] spin off,” wrote Maynard Webb, chairman of Yahoo’s board of directors. “Among other factors, we were concerned about the market’s perception of tax risk, which would have impaired the value of Aabaco stock until resolved.”
Instead, Yahoo will tack the opposite direction, a reverse spin off of its core assets, including a roughly $9 billion stake in Yahoo Japan.
“Yahoo’s assets and liabilities other than the Alibaba stake would be transferred to a newly formed company, the stock of which would be distributed pro rata to Yahoo shareholders resulting in two separate publicly-traded companies,” said the company in a release announcing the new plan. In other words, if you’re a Yahoo shareholder, you’ll wind up with shares in both companies.
Yahoo CEO Marissa Mayer stressed the importance of separating out the company’s core internet business from its Alibaba stake. “”In addition to our efforts to increase value and diminish uncertainty for investors, the ultimate separation of our Alibaba stake will be important to our continued business transformation,” wrote Mayer. “A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo’s business.”
The reverse spin should help resolve two of Yahoo’s immediate problems. First, it dodges the tax question, at least for now. And second, it makes Yahoo’s fortunes less reliant on a company outside of its control.
Yahoo shares are up nearly 2 percent in pre-market trading on the news, holding on to its major gains on the original WSJ report from last week. The company will hold a conference call for shareholders at 9am to give further guidance.
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