Yahoo! to sell its core business but maintain stake in Alibaba

YAHOO HAS put the kibosh on its plan to sell its remaining stakes in global e-commerce giant Alibaba and is instead looking at a reverse spin-off of its main business in a spectacular demerger. The stock of the new entity would be distributed pro rata to Yahoo shareholders, resulting in two separate publicly-traded companies.

“In 2016, we will tighten our focus and prioritize investments to drive profitability and long-term growth”. Yahoo sold half of its original stake back in 2012, and cashed in shares as part of Alibaba’s historic 2014 IPO, but it still holds a slice of the company worth more than $30 billion.

The company now has a market capitalization of $35 billion, and almost all of its valuation stems from its 15% stake in Alibaba and its Yahoo Japan holdings.

After all of that is complete, Yahoo said it could still take over a year for the process to go through. Max Levchin, co-founder of PayPal, resigned from the boards of Yahoo, Yelp and Evernote to devote more time to his new venture, Affirm.

Chairman Maynard Webb tried to tamp down sale speculation on a call Wednesday morning with investors.

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 United States government and Wall Street. The spinoff is created to let Yahoo avoid paying billions of dollars in future taxes.

Analysts say Yahoo’s websites, mobile applications and ad services, along with its well-known brand, could fetch $3 billion to $5 billion from a list of potential suitors that could include AT&T Inc., Verizon Communications, Comcast Corp., IAC/InterActiveCorp and private equity firms that specialized in buying troubled companies. The decision is a major setback for CEO, Marissa Mayer, who has been in the leadership position for four years now.

Marissa Mayer ultimately still hasn’t accomplished much: You’ve gotta wonder how long the Mayer experiment will continue, with pressure from the likes of Facebook (FB) and Google (GOOG, GOOGL) making it tough for Yahoo to gain much sway in online advertising. The company’s board unanimously voted for a “reverse spin-off”, where the core Web business would be made into a separate company.

The reverse spin off will be subject to third party consents, preparation of audited financial statements, shareholder approval, and SEC filings and clearance, including under the Investment Company Act of 1940.