Experts say that Yahoo’s plan to shed its Internet business to retain its stake in Alibaba may take CEO Marissa Mayer more than a year to complete.
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For all the concerns about the potential tax liabilities from Yahoo spinning off its stake in Alibaba, it seems investors are now shaken by the board’s decision not to do it. In fact, amid all the calls to spin off the core business instead, Yahoo has chose to do just that.
After what Yahoo says is “careful review and consideration of how to best drive long-term value for shareholders”, the company’s board has unanimously voted to suspend plans to separate Alibaba from the rest of Yahoo.
The company originally believed its Alibaba spinoff plan would be tax free, but after the IRS declined to confirm that this would be the case, the transaction was cast in doubt.
“The challenge with the reverse spin is that the operating company – warts and all – will be on display for the market to evaluate”, said Paul Sweeney, a Bloomberg Intelligence analyst. “She can sell the company and have a graceful exit or she can be part of a larger company or private equity team and still continue to run the business”.
On a conference call Wednesday, Chairman Maynard Webb emphasized Yahoo would proceed with the spinoff of the Internet business, a constellation of Web properties ranging from Yahoo Mail to the namesake home page that are collectively the third-most visited Internet sites in the U.S. That brought the decline this year to 32 per cent.
Those remarks seemed to disappoint investors hoping that Yahoo’s latest change in course might be a precursor to a sale.
“Absolutely”, he said. “I’ve never met anybody who works harder, is smarter and cares more”.
Setback… Ms Mayer’s attempted Alibaba spin-off has been stalled.
Without its core Internet business Yahoo would be a very different business: a company with a 15 per cent stake in another ecommerce giant, but no longer an active web player itself – unless Mayer’s plan for Yahoo’s transformation really is a much tighter focus.
On a conference call with analysts Wednesday, CEO Marissa Mayer explained that if Yahoo chose the more direct strategy of giving Alibaba shares to investors, then both Yahoo and investors would have to pay taxes. Another activist shareholder, Jeff Smith of the NY hedge fund Starboard Value, had threatened to lead a mutiny if Yahoo’s board hadn’t backed off from the Alibaba spinoff.
“The narrative around Yahoo and our valuation is complicated”, Mayer said Wednesday during her appearance on CNBC.
“This is not the first time they have tried to revitalize the core business, and they have failed”, O’Donnell said.
Under the revised plan, Yahoo shareholders would still end up with stock in two companies.
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.
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As Wall Street’s frustration with the inertia has mounted, Yahoo’s stock has fallen by about 30 percent so far this year. Take away the Alibaba stake, and Yahoo is valued at zero or less – even with its branded products.
