Yahoo Cannot Let Go Of Alibaba

In a Wednesday announcement, Yahoo said that it has scrapped its planned spinoff of its $31-billion stake in bigwig Chinese e-commerce company Alibaba.

The stock from this company would be distributed amongst Yahoo shareholders and result in the creation of two separate publicly traded companies, Yahoo said.

“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”, said Marissa Mayer, CEO of Yahoo.

For companies like Yahoo that are taxed at the top corporate rate of 35 percent, the capital gains tax for the stock would amount to about $10 billion if Yahoo sold Alibaba shares outright. These remaining assets include Yahoo.com and the company’s stake in Yahoo Japan.

With Yahoo now focusing on potential deals involving its core business, selling off most of the company could now be an option.

Despite all of this though, Yahoo still has control over one of the biggest Internet user bases in the world, with more than a billion users worldwide. The reverse spin-off is complex and could take a year or more to execute.

Today Yahoo announced a new plan to break apart from Alibaba. The firm is now working to spin off its core businesses into a new company in order to separate itself from its high-value stake in Alibaba.

Yahoo had earlier considered spinning off Alibaba and keeping the rest, but was “concerned about the market’s perception of task risk”, Yahoo Chairman Maynard Webb said in the Yahoo statement. AT&T and Verizon Communications could be possible buyers for the Internet business if the board decides to put the internet business for sale.

The Yahoo board “is going to have to make some decisions long before we would have any interest”, he said.

Meanwhile, activist investor Starboard Value has pushed for Yahoo to sell its core business, which has a market capitalisation of more than $30bn. Investors have concluded that Yahoo’s Internet business is worth next to nothing, largely because its ad revenue has been sinking for years even though marketers have been steadily increasing their spending on digital campaigns. PayPal co-founder Max Levchin said on December 4 he is resigning from the board “due to his other professional commitments and demands on his time and not due to any disagreement with Yahoo”, the filing said.