Yahoo To Spin Off Web Business

Rather than spin off the Alibaba stake into a new group, Yahoo will package its core business and stake in Yahoo!

Yahoo’s operating income has fallen 89 percent in the past 12 months versus a year earlier. Caving into pressure from investors because of the potential tax repercussions, Yahoo has revealed that it is no longer looking into selling its Alibaba stakes, now valued at $30 billion, despite strong indications that it wanted to do so.

Rumours Yahoo has been considering spinning off Alibaba have been circulating for a number of months, resulting in a recent seven percent spike in the company’s shares.

“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. If Yahoo is taxed on the gains in its original $1 billion investment, the bill would exceed more than $10 billion, Reuters reported. Yahoo declined to comment on the latest developments. Ms. Mayer had counted on the Alibaba spinoff as a centerpiece to her strategy to unlock value for shareholders and buy time for a revival of a digital-ad business eclipsed by Google Inc. and Facebook Inc.

As far as major corporate business goes, this week for Yahoo has had more plot twists than a M Night Shyamalan movie, as it decides to stick with its Alibaba stock, splitting the company in two.

Telecommunications giant Verizon Communications Inc would explore a possible acquisition of the Web assets, Verizon Chief Executive Officer Lowell McAdam said Tuesday at a Business Insider conference.

“This means they have squandered an entire year and now it’s going to take another year while the core business continues to get weaker”, BGC Financial analyst Colin Gillis said.

Yahoo has thrown out plans to spinoff their share in Alibaba, worth about US$31 billion.

“Yahoo to spin off core business; Detroit shows promise; Internet bills getting more expensive?” is categorized as “business”.

Mayer said she believes Yahoo’s Internet business in significantly better shape than when she arrived, largely because it is pulling in more traffic and advertising in the increasingly important smartphone and tablet market. The decision is a major setback for CEO, Marissa Mayer, who has been in the leadership position for four years now.

The meetings Yahoo held last week included a discussion on whether to heed an activist shareholder Starboard Value’s call for Yahoo to sell its websites, mobile applications and ad services that generate most of its revenue and recast itself to a holding company for its stock in Alibaba, a rapidly growing e-commerce company, and Yahoo Japan.

Yahoo shareholders could have ended up paying billions in taxes if the IRS had determined that a spin-off was taxable. The company’s annual sales peaked at $5.4 billion in 2008, and are projected to slip 8 percent this year to $4.04 billion, minus revenue passed on to partner sites.

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.