Yahoo’s assets and liabilities other than the Alibaba stake would be transferred to a newly formed company, shares in which would be distributed pro rata to Yahoo stockholders, resulting in two separate publicly-traded companies.
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With sales hovering around 2006 levels, investors’ patience had begun to wane, and activist shareholder Starboard Value LP last month called for the company to drop the Alibaba spinoff and instead sell its Web businesses, or face a proxy fight.
If the transaction ultimately is taxed, the bill would be a lot smaller for the Yahoo core plus Yahoo Japan entity than the original plan to spin off its Alibaba stake.
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.
Yahoo is now pursuing a different course that could make it easier to eventually sell its Internet operations, the business that now generates virtually all of Yahoo’s revenue.
When Mayer came on board in July 2012, she was Yahoo’s third CEO in less than a year.
The US company will now consider selling its core business as an alternative to the spinoff, including its search and display advertising services.
According to Yahoo, the decision was driven by “the market’s perception of tax risk” associated with the Alibaba spinoff.
Elaborating on its new spinoff plan, Yahoo said that – with the planned spinoff of its Alibaba stake having been halted – it would now spin off its remaining assets into a separate company.
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Analyst Kay said the revised plan “means Marissa Mayer is not ready to let go of the core Yahoo assets without a fight”. Yahoo’s investment in Alibaba is valued at $32 billion, and the Yahoo Japan investment is valued at $8.6 billion. It also may raise more doubts about whether Mayer will be able to turn around Yahoo, even though company Chairman Maynard Webb said Wednesday that the board of directors remains in her corner after three-and-half years on the job.
So how are those core Internet businesses doing?
And who should buy Yahoo? They have fallen 31 percent this year through Tuesday.
Yahoo (Hanover: YHO.HA – news), which is best known for its search engine, said it will look at a so-called “reverse spin-off” instead.
Members of Yahoo’s board said in a statement that they were abandoning a previous plan to spin-off Yahoo’s massive and valuable stake in Alibaba, the Chinese e-commerce company, amid concerns that the deal would incur steep taxes on Yahoo. Despite that possibility, Mayer had been planning to complete the Alibaba spin-off by next month in a reflection of her belief that the split would gain tax-free status. There is too much potential value, and even a $10 billion Yahoo is a minnow among Internet whales, likely not long for this world. But one analyst, Robert Peck with SunTrust, said he expected the company to expedite the process.
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Yahoo also announced that Max Levchin, co-founder of PayPal Holdings Inc, was resigning from the board because of the demands on his time, “not due to any disagreement with Yahoo on any matter related to Yahoo’s operations, policies or practices”.
