It believed the move would have been tax-free, but investors were anxious that it could cost shareholders billions in taxes, in the absence of assurances from the U.S. tax authorities.
Advertisement
Today, after what the company said was “careful review and consideration of how to best drive long-term value for shareholders”, the Yahoo board has unanimously voted to suspend the plan to spin off the Alibaba stake.
Yahoo is scrapping its original plan to spin off its prized stake in China’s Alibaba Group and will instead explore breaking off the rest of its business into a new company.
The reverse spin off will be subject to third party consents, preparation of audited financial statements, shareholder approval, and SEC filings and clearance, including under the Investment Company Act of 1940.
About a decade ago, Yahoo Inc. invested just $1 billion in Alibaba, a bargain that slapped the company with massive tax bills as it whittled its stake during the past three years.
Mayer also said she’s “happy with the achievements” that the company has made under her leadership.
Does it find a buyer, or another firm with whom it can merge?
It may take more than a year before Yahoo shareholders get stock in a newly formed company that has yet to be named.
Yahoo’s share of search referrals in the USA fell from 7.6% in July 2012, when Marissa Mayer was appointed president and CEO, to 7.4% in November 2014, according to StatCounter.
Yahoo has struggled to grow its Internet business, which includes selling search and display ads on its news and sports sites and email service, in the face of competition from Alphabet Inc’s Google and Facebook Inc.
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.
Maynard Webb, Yahoo’s chairman, said the board believed that Marissa Mayer, Yahoo’s chief executive, could continue to improve the core business, and the company was not for sale. The sale of the latter would, therefore, incur more tax.
And then, once the business looks better, start talking to suitors.
The company added that it is now considering alternative structures to separate the Alibaba stake, with a specific focus on a “reverse spin off”.
While Starboard originally supported the move, it has since urged the company to sell off the core business in view of tax concerns.
Eastern promise… nearly all Yahoo’s value is composed of its stake in Chinese online giant Alibaba. “To achieve this, we will now focus our efforts on the reverse spin-off plan”. Investors have concluded that Yahoo’s internet business is worth next to nothing, largely because its ad revenue has been sinking for years even though marketers have been steadily increasing their spending on digital campaigns. Investors have been counting on her to complete a turnaround and get the business back on track, but this struggle is likely one of the main reasons investors don’t see Core Yahoo as being worth much at all, if anything.
Founded in 1994 by Stanford University students David Filo and Jerry Yang, Yahoo was created as a type of directory for the Internet. The end result would be two separate, publicly traded companies. “The next big question is ‘What’s the future for Yahoo?’ There are still more questions than answers, and it’ll be that way for a long while to come”.
Proactive Investors is a global finance news, media and events organisation focusing on emerging growth companies across four continents.
Advertisement
But Mayer hasn’t been able to replicate the excitement around products that many of Yahoo’s fiercest rivals have been able to ignite. “Yahoo in contrast really defined their business very tightly”.
