Yahoo spinning its wheels on spinoffs as CEO scrambles to revive company’s

Yahoo says it’s now considering a reverse spinoff, separating Yahoo core assets and the Alibaba (NYSE:BABA) stake into two separate firms.

Yahoo Inc. said that its board will now look at alternatives to separate the Alibaba stake, focusing specifically on a reverse spin off. The company said in the reverse spin off, Yahoo assets and liabilities other than the Alibaba stake would be transferred to a newly formed company.

Stocks in the new company would be distributed to Yahoo shareholders on a pro rata basis.

Yahoo, which has a market capitalization of about $35 billion, owes most of its valuation to its stakes in Alibaba and Yahoo Japan Corp. She then planned to focus on improving the company’s core business, the sale of advertising that is shown to the roughly 1 billion users of Yahoo’s apps and websites.

Yahoo’s shares (YHOO) dropped nearly 5% during mid-day trading before closing down 1.3% to $34.40 a share.

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.

In a worst-case scenario, the tax bill would be $5.3 billion, compared with the potential for a $13.3 billion hit from the Alibaba spinoff, Sterne Agee CRT analysts wrote in a note.

Maynard Webb, chairman of the board, explained the board’s reasoning: Although board members believe the previously announced spin off would be tax free to Yahoo and its shareholders, they are considering the bigger picture at Yahoo. “Given the size and assets I think a sale is less likely, but could create tax efficiencies for the buyer if they wanted to divest certain assets”. Its services include display and search ads on Yahoo’s email service and news sites.

Yahoo announced Wednesday that it would spin-off its core business into a separate, publicly traded company, a move that could make its popular but exhausted Web properties more attractive to suitors.

What Yahoo, under Mayer’s guidance, needs to do now is crisply define its business, cut costs, and notch some real wins in its earnings report.

Analyst Kay said the revised plan “means Marissa Mayer is not ready to let go of the core Yahoo assets without a fight”. Shareholders would also forgo paying a second dividend distribution tax of about 15 percent on those shares.

DATE IMPORTED:April 24, 2013President and CEO of Yahoo, Marissa Mayer, arrives for the Time 100 gala celebrating the magazine’s naming of the 100 most influential people in the world for the past year, in New York, April 23, 2013. And the focus no longer is on liberation, but on the possibility of selling off the core business.

The chief government of CBS, Leslie Moonves, stated the media firm wouldn’t pursue Yahoo, talking at an occasion earlier this month. “A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo’s business”. Analyst Andrew Frank believes Yahoo can perform better as a media company than a technology company. Yahoo has struggled to build online and mobile ad revenue vs. rivals led by Google and Facebook (NASDAQ:FB).

Yahoo additionally introduced that Max Levchin, co-founding father of PayPal Holdings Inc, was resigning from the board due to the calls for on his time, “not due to any disagreement with Yahoo on any matter associated to Yahoo’s operations, insurance policies or practices”.