Yahoo Urged by Starboard to Scrap Alibaba Spinoff Plan

Activist investor Starboard is pushing Yahoo to abandon the planned spinoff of its valuable stake in Chinese e-commerce company Alibaba and sell its Internet search and advertising business instead.

The latest letter from Starboard represents a drastic change from its stance previous year, when it publicly urged Yahoo to fast-track the separation. Starboard rather recommends the tech giant to sell its struggling internet business.

Starboard still believes there is a risk. Last month Yahoo said that the spinoff is likely to be completed in January 2016. Given Yahoo is already far along in the process and has signaled confidence about the outcome, it’s unclear if the company would reverse course. At the time, Smith, whose firm owns less than 1% of Yahoo, urged a combination of the company and AOL that would [facilitate] the realization of value from Yahoos non-core equity stakes. “Based on our evaluation of the risk-adjusted options now available to Yahoo, as well as the market’s assessment of the current strategy and risks thereof, we believe the board needs to be open to changing direction”. The EconoTimes content received through this service is the intellectual property of EconoTimes or its third party suppliers. While that would incur its own taxes, the bill would be smaller given the massive gains on Yahoo’sAlibaba shares, Starboard’s letter said. Yahoo’s spinoff of its 15 percent stake in Alibaba was finalized under the supervision of former associate chief counsel of the IRS, William Alexander, who was central in the agency’s decision to allow tax breaks to companies to conduct spinoffs. Ms. Mayer has tried to position Yahoo as a threat to Google Inc.in Web search and as a challenger to Netflix Inc.in the emerging area of online video content, projects that have cost Yahoo hundreds of millions of dollars but yielded little in the way of users or revenue.

The hedge fund said that Yahoo’s core business value in the market less its cash holdings is only around $2 billion. Alibaba was up 0.5%. AOL was ultimately bought by Verizon in May for $4.4 billion.