Yahoo Decides To Keep Its Alibaba Stake, Announces Reverse Spinoff Plans

Yahoo is scrapping its original plan to spin off its prized stake in China’s Alibaba Group and will instead explore breaking off the rest of its business into a new company.

Yahoo’s board authorised a plan to carry out a tax-free spin-off of its 384 million Alibaba shares in January, three months after Alibaba’s IPO raised $25 billion.

In September, the company disclosed that the Internal Revenue Service had denied a request for a ruling in favor of the Alibaba plan.

The Yahoo reverse spin should be able to bring shareholders marginally more value, but by no means is it a long-term fix.

The company said in a statement that concerns over a massive tax liability connected to an Alibaba spinoff forced them to nix that idea.

The company’s stake in Yahoo!

Yahoo has announced that after a week of careful board deliberation, the company won’t be spinning off the company’s holdings in Alibaba. The company’s net cash or cash minus debt is $4.2 billion.

The turnaround Mayer was hired to execute in 2012 hasn’t come to fruition, and the vast majority of YHOO stock’s performance over the past five years has been driven by the BABA holding, not Yahoo itself or anything Mayer has been able to do. Mayer is mulling a shift in direction as part of a sweeping review of the company.

The new publicly listed company will house Yahoo’s Internet business and its 35 percent stake in Yahoo Japan, Yahoo said on Wednesday.

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. If Yahoo is taxed on its gains from the fortuitous investment negotiated by co-founder Jerry Yang, the bill would exceed more than $10 billion. The spinoff is created to let Yahoo avoid paying billions of dollars in future taxes.

Under Yahoo’s old plan, the new company Aabaco would have been comprised of only Yahoo’s 15% stake in Alibaba, valued at $30 billion or more.

Yahoo, once a household name around the Internet, may soon split in two-but not in the way it once planned. That valuation plunges to $21 per Yahoo share when fully taxed, however, according to Jefferies analysts Brian Pitz and Brian Fitzgerald. But that plan was scuttled after the IRS refused to provide the company guidance on whether the spinoff would be tax-free, spooking investors. Starboard Value sent a letter to Yahoo!’s board of directors urging it not to spin off the Alibaba stake, instead focusing on selling the search and advertising business.

SUNNYVALE, Calif. – December 9, 2015 – Yahoo!