Yahoo scraps original Alibaba spin off plan

Yahoo announced today that it has abandoned a plan to spin off its $31 billion stake in Alibaba, a popular Chinese e-commerce company, and would instead spin off all of its other assets into a new company. If the Web business sells, Yahoo’s shareholders might be more anxious about the performance of Alibaba or its Japanese web portal, than any new projects Mayer is trying to push. Although the board unanimously voted in favor of dropping the spinoff, it emerged from last week’s meeting one less director.

There’s also the fact that the sum-of-its parts valuation doesn’t include a discount for any taxes Yahoo might have to pay in selling its stakes in Alibaba and Yahoo Japan, a joint venture with Japanese conglomerate SoftBank.

The backflip is a defeat for Chief Executive Officer Marissa Mayer, who was brought aboard in 2012 to revitalize the once-dominant Internet brand that has struggled to find a strategy to return the company to growth.

Investor’s didn’t cheer the move.

The company originally believed its Alibaba spinoff plan would be tax free, but after the IRS declined to confirm that this would be the case, the transaction was cast in doubt. She is not helped by the fact that there has been a constant exodus of top executives in the company, including the recent exit of Max Lechvin, who was one of the first additions to Yahoo board under Ms. Mayers.

The board did not make an announcement connected to Mayer and she specifically mentioned her alignment with the board in this morning’s conference call.

Yahoo suggested it wasn’t entirely swayed by Starboard. The holding in Yahoo Japan and its core business are valued at just $1.2 billion, but the Yahoo Japan stake is actually worth $8.5 billion and the rest of Yahoo is worth between $3 billion and $8 billion, according to analysts. Analyst Andrew Frank believes Yahoo can perform better as a media company than a technology company. Verizon and IAC/InterActive Corp. are said to be considering a bid on Yahoo, and given the cash Yahoo generates it’s a natural deal for private equity, particularly if they can get it for a low multiple of earnings.

Verizon is seeking to boost its presence as an Internet company, following its 4.4 billion acquisition this year of AOL.

Yahoo wants to spin off, well, Yahoo.

According to Yahoo’s board of directors, the decision came after consideration of how to best drive long-term value for its shareholders.

Board chairman Maynard Webb said the new initiative was decided because “we were concerned about the market’s perception of tax risk” in the initial plan. And last month, activist investor Starboard Value LP petitioned for Yahoo to drop its plans for the Alibaba sale and instead sell off its core web businesses. But it still has a fiduciary duty to engage with any serious buyers that approach with an offer.

The reverse spin to repackage the remaining assets and liabilities is likely to require additional steps, including approvals and new financial statements, the company said in the statement.