Yahoo to go ahead with Alibaba spinoff without IRS approval

Chief Executive Officer Marissa Mayer, seeking to address doubts on Wall Street about how she’s managing the company’s assets, is aiming to spin off the roughly 15 percent stake in China-based Alibaba and potentially save about $9 billion in taxes.

Yahoo and its tax experts are confident that the spinoff plan would pass the legal hurdles and be tax-free.

Yahoo’s board authorised the spinoff, even though the US Internal Revenue Service declined to grant the company an advance ruling blessing the deal, it said in a filing on Monday. When Yahoo first revealed plans for an Alibaba spinoff in January, the stake in the Chinese ecommerce company was valued at approximately $40 billion, but it has since dropped to $22 billion. The news sent Yahoo stock up 3 per cent to $US28.51 in after hours trading, after it closed down 5 per cent on the day. This deal was credited to Jerry Yang, a co-founder at Yahoo.

Yahoo said in a public filing on Monday that it will complete the transaction by the end of the year.

Completion of the transaction is expected to occur in the fourth quarter of 2015, subject to the conditions described above. Analysts believe that the core Yahoo is worth nearly nothing without its stakes in Alibaba and Yahoo!

Shareholders and analysts expect that Alibaba and Yahoo will be worth more separately. “It would be hard for outside counsel to provide Yahoo with a tax opinion that reaches a very high level of certainty now that the IRS has refused to rule”. But since this sale will occur during Q4 and there is little indication that anything major will substantively improve Alibaba’s standing in the short term, this means that Yahoo will be spinning off its remaining stake in Alibaba significantly below its IPO price.

The Small Business department, responsible for helping SMBs get their businesses online, was folded into the spinoff plans in February. Yahoo! can now fully concentrate on pursuing growth.