Spin off itself, not its Alibaba stake

This will see the company’s core assets transferred to a newly-formed company, with the Alibaba stake left behind.

In the end, spinning off the business that got it to where it is in the first place – search, email, Yahoo Japan, Tumblr – is considered a safer strategy than annoying the U.S. government and Wall Street.

The plan to spin off Alibaba stake would have been far simpler, he added.

YAHOO is scrapping its original plan to spin off its prized stake in China’s Alibaba Group and will instead explore an alternative breakup that could make it easier to eventually sell its internet business.

“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”, Chief Executive Marissa Mayer said in a statement.

Yahoo’s board met last week to review Mayer’s stalled turnaround attempts, as well as whether to move ahead with the previously planned Alibaba spinoff.

Yahoo’s plan to spin off its stake in Alibaba hit a hurdle in September when the IRS denied the company’s request for a ruling on whether the transaction would be tax-free, potentially costing shareholders billions in taxes. Yahoo has been struggling to compete with the likes of Google and Microsoft’s Bing when it comes to search and this has made it hard for Marissa Mayer, Yahoo’s CEO, to turn the company around.

While Yahoo would still have to pay taxes in a “reverse spinoff” of Yahoo’s search and display core business, Starboard noted that pursuing an Alibaba spinoff would be much more costly to shareholders.

“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”, Maynard Webb, Yahoo’s chairman, said.

When Yahoo announces those fourth-quarter results next month, Mayer also plans to unveil a shake-up that is supposed to jettison the company’s least profitable products and likely will lead to layoffs.

Known as a reverse spinoff, the plan reflect Yahoo’s complicated revenue structure.

Webb, though, emphasized there are no plans to sell Yahoo’s Internet business. “The next big question is ‘What’s the future for Yahoo?’ There are still more questions than answers, and it’ll be that way for a long while to come”. After the distribution, Yahoo will still have an extra $1.3 billion to finance acquisitions or hire new talent.

Based on its cash holdings and its investment in Yahoo Japan, Yahoo’s market value suggests the core operations are worthless or may even have a negative value. After all of that is complete, Yahoo said it could still take over a year for the process to go through. Authorities have since refused to give guidance on whether the spinoff would be taxed. In a regulatory filing, the company said the change is not due to any disagreement with on any matter related to Yahoo’s operations, policies or practices.

Yahoo is also considering what to do with its stake in Yahoo Japan, according to the CNBC report.

Numerous investors asked Mayer and Webb on an official conference call Wednesday morning whether the reverse spinoff was forging the path for a sale of the company’s core assets, to which both executives said, in effect, no such plans are in the works. Yahoo’s stock shed 45 cents to close at $34.40.