Yahoo’s new plan: Spin off itself, not its Alibaba stake

The company has been seeking to revive its fortunes under chief executive Marissa Mayer but the core operations are seen as having little or no value. Nearly ironically, Yahoo’s board decided against selling its core search and display ad businesses, a move that investors and shareholders had, in fact, been supporting.

Yahoo will not be spinning off its $32 billion stake in the Chinese e-commerce giant Alibaba.

Shares of Yahoo, which will remain publicly traded, were down 3.7 percent at $33.56 on Nasdaq as investors digested the complexity of the so-called “reverse spin-off”. Revenue peaked at $5.4 billion in 2008, and is projected to slip 8 percent this year to $4.04 billion, minus revenue passed on to partner sites. The biggest challenge is to find a way to reverse the previously announced spin transaction – and that’s just the beginning of getting out of the weeds.

At this point, Yahoo’s future becomes even more muddled, with Mayer’s strategy for pulling the company out of its financial misery all but scrapped.

In the meantime, the company will tighten its focus in 2016 and prioritize investments to drive profitability and growth, Mayer said.

Earlier this week, Verizon Communications (Xetra: 868402 – news) chief executive Lowell McAdam said he could be interested in snapping up Yahoo assets if they were put up for sale.

It’s the climax to an 11-month debate over whether Yahoo would be able to separate its core business from the Alibaba stake without incurring a massive tax bill. Others have said it could be worth less than $2 billion.

According to FBR & Co., an equity analysis firm, AT&T and Verizon could be possible buyers for the core assets, which include advertising and search technology, as well as a growing content library.

August 9: Yahoo says Mayer may revise plans to pay shareholders billions of dollars from the sale and instead keep the windfall for other spending.

“Similar to AOL, Yahoo may be better off in the hands of a strategic or financial buyer”, Sweeney said.

“This is now the politically correct way to say that they are ready to accept offers”, said Chris Bulger, an independent tech banker based in Boston who has no affiliation with Yahoo.

But Yahoo.com nonetheless ranks fifth when it comes to every day visits, in accordance to monitoring agency Alexa, and this might make it a handsome goal for a telecom service or personal fairness.

Coolbrith argues that Yahoo should be worth at least $43 per share right now and believes that investors should be applying tax discounts for the Yahoo Japan stake and Core Yahoo instead of the Albibaba stake. This could reduce the company’s tax liability even more if the transaction ends up being taxed.

“I can assure you that we did not reach this unanimous decision hastily or without careful consideration”, said Webb.

“This was really a really good PR move by Starboard as the spinoff was highly unlikely anyway given the tax implications and they knew they could claim victory once Yahoo made the official announcement”, said Jim Osman of The Edge Consulting Group, a research firm that advises activist hedge funds.

Activist investor Starboard Value LP requested Yahoo in November to drop its Alibaba plans and promote its core search and show advert companies as an alternative.