Yahoo Shelves Alibaba Spin Off

Yahoo is giving Nelson – who is the internet company’s Global editor-in-chief – an annual compensation package of $5 million a year, Politico said, citing a source with direct knowledge of the deal.

“This business remains very undervalued and that means that if somebody came today, they would probably come with an offer that would reflect the current value and a mark-up”, Webb said on CNBC.

Yahoo is discussing the possibility of a spinoff of its core Internet business.

The handling of the Alibaba stake is crucial to Yahoo shareholders because of the money involved.

AT&T Inc (T.N) and Verizon Communications Inc (VZ.N) could be possible buyers for the Internet business, FBR said.

Webb, though, emphasized there are no plans to sell Yahoo’s Internet business.

“The narrative around Yahoo and our valuation is complicated”, Mayer said Wednesday during an appearance on the financial news channel CNBC. Yahoo wants to sell that stake, which is worth about $32 billion, for two reasons: one, to get a bunch of cash, which it can give to investors who are hungry for a return; and two, because those shares arguably overshadow the rest of the business, making investors undervalue what Yahoo itself brings to the table.

Yahoo’s plan to spin off its stake in Alibaba hit a hurdle in September when the IRS denied the company’s request for a ruling on whether the transaction would be tax-free, potentially costing shareholders billions in taxes.

“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”, Mayer said. The stock of the new company would be distributed pro rata, i.e., proportionate allocations, to Yahoo shareholders. The stock was getting hammered amid concerns that spinning off the Alibaba stake – worth more than US$30 billion (127.4 billion) – would involve a tax bill that could exceed US$10 billion.

“It’s achieving the same strategic benefits, but in a backward sense”, said James Angel, associate professor of finance at Georgetown University’s McDonough School of Business. Its shares rose more than 2 percent in after-hours trading.

With Yahoo hanging in limbo, prospective bidders could emerge for the company’s Internet operations, which Wall Street has been valuing at next to nothing amid a decline in revenue. It could take another year or more and may still carry a tax liability, albeit a smaller one because the asset is smaller.

“Verizon is vying to get a larger share of advertisers’ wallets and adding Yahoo would help strengthen AOL as the No. 3 player”, said Brian Wieser, an analyst at Pivotal Research Group. The spinoff plan was announced by Yahoo in January this year.

Yahoo (Hanover: YHO.HA – news), which is best known for its search engine, said it will look at a so-called “reverse spin-off” instead. Taxes related to the spin-off could leave Yahoo shareholders on the hook for $12 billion. After engaging with Yahoo for months and imploring Mayer to make changes to boost the company’s value, Starboard said in a November 19 letter that “there has been little evidence of a turnaround” and “recent results are actually moving decidedly in the wrong direction”.