Yahoo plans spinoff of Alibaba shares with no IRS blessing

Alibaba shares were up 1 per cent at $57.97 in morning trading.

While the IRS is stepping up its scrutiny of these types of transactions, Yahoo said in January after the IRS had indicated a decision is not likely to be retroactive.

Chief Executive Marissa Mayer has been under intense pressure from shareholders to spin off Yahoo’s 15 percent stake in Alibaba.

Earlier this month, the Internal Revenue Service (IRS) refused to clarify whether the spinoff of Alibaba stake will be tax-free.

Based on the closing of Alibaba on Monday at $ 59.24 and Yahoo owning 384 million of their shares this transaction will be worth $ 22.75 billion.

In a filing today (Sept. 28) with the US Securities and Exchange Commission, Yahoo said its board authorized the company to continue with the proposed spinoff, which it’s hoping goes without a hitch. Still, Wall Street’s concern over the stamina of the company’s core business has taken its toll and Yahoo stock has declined 44% since the start of the year.

Rather than selling off the Alibaba shares directly, Mayer and company had sought a “tax-free alternative”, one that “delivers value directly and exclusively to our shareholders”.

Yahoo expects the deal to close in the fourth quarter. Depending on if and how the IRS decides to tax the transaction, Yahoo’s spin-off could end up being an expensive proposition.

“Yahoo has made it pretty clear in the past that it wants to spin off Alibaba’s shares”, said Tiffany Feng, an analyst at BOC worldwide Holdings in Hong Kong. Given that Alibaba’s share price has already halved since its November peak as a result of China’s slowdown, this isn’t exactly going to leave many happy campers among Yahoo’s investors.

The Small Business department, responsible for helping SMBs get their businesses online, was folded into the spinoff plans in February.

Yahoo! carries a Zacks Rank #3 (Hold). All the while, none of her actions as CEO have led to any substantive growth for Yahoo.