The decision marks a U-turn on a previous plan to spin off Yahoo’s vast holdings in e-commerce giant Alibaba, which could have exposed it to a huge tax bill.
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Yahoo’s Chief Financial Officer Ken Goldman, also on the call this morning, said that spinning off Yahoo’s core Internet business is expected to require third-party consents, shareholder approval and filings and clearance from the Securities and Exchange Commission.
Many of Yahoo’s 10,700 employees may also be fretting about their job security, with CEO Marissa Mayer promising to announce plans for a cost-cutting reorganization late next month and many analysts speculating that the company’s Internet business will be sold if the latest overhaul doesn’t bear fruit quickly.
The Alibaba stake alone is worth more than $30 billion. This type of reach would have investors salivating were Yahoo a privileged member of the unicorns, those rare startups valued privately at $1 billion or more, particularly because Yahoo actually has revenue of almost $5 billion a year. The end result would be two separate, publicly traded companies.
In January, Yahoo announced plans to spin off its valuable 15% Alibaba stake, to unlock shareholder value.
In February, CEO Marissa Mayer was adamant that the spinoff would not incur taxes under current United States regulations. 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.
Yahoo wants to sell that stake, which is worth about $32 billion, for two reasons: one, to get a bunch of cash, which it can give to investors who are hungry for a return; and two, because those shares arguably overshadow the rest of the business, making investors undervalue what Yahoo itself brings to the table.
Private equity, media and Internet firms are potential buyers. “A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo’s business”. This coincides with his recent purchase of AOL for $4.4 billion in May of this year.
Yahoo executives said on a conference call they still believed the original spinoff would have been tax-free but the specter of a big tax bill had unnerved investors, depressing the company’s stock price.
“But what’s interesting is on the conference call with the chairman, Maynard Webb, when someone asked whether Yahoo was looking to sell the company’s core operations and assets, his choice of words was very generic and very carefully chosen”, Kessler said.
Stocks in the new company would be distributed to Yahoo shareholders on a pro rata basis. Even if it’s taxed on the spinoff of its Internet business, the cost would be significantly less.
Management stated that the board had not determined to put the core business up for sale.
The chief executive of CBS (CBS.N), Leslie Moonves, said the media company would not pursue Yahoo, speaking at an event earlier this month.
However, Webb said: “The board has a fiduciary obligation to look at any good offer”, adding that Yahoo is “not proactively trying to do any of that”.
Microsoft: Although Microsoft made a failed attempt to buy Yahoo for $40 billion in 2008, the company could try again as it explores territory beyond software, the cloud and other avenues.
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The firm, overtaken by Google, Facebook and others since pioneering the business net within the Nineteen Nineties, stated it had no plans to promote its core enterprise, as some buyers had hoped, however the transfer successfully invitations presents for the brand new entity.
