Yahoo on Wednesday confirmed that it is abandoning its plan to spin off its Alibaba stake into a separate company and will instead potentially spin off its core business.
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Estimates for the value of the core business (mostly media) range from about $2 billion-$4 billion, with most of Yahoo’s enterprise value owing to its stakes in Alibaba and Yahoo Japan.
Based in Sunnyvale, CA, Yahoo! provides search and display advertising services on Yahoo properties and affiliate sites worldwide. With sales hovering around 2006 levels, investors’ patience has begun to wane, and activist shareholder Starboard Value last month called for the company to drop the Alibaba spinoff and instead to sell off its Web businesses – or risk a proxy fight.
The problem is the Internal Revenue Service will not agree in advance to let Yahoo spin off Alibaba tax-free. But, after an unfavorable IRS ruling, it could be subject to a very big tax bill of about $10 billion. The end result is two separate publicly traded companies.
The new plan does not affect the company’s stake in Yahoo Japan, which is also being reviewed by the California company.
Webb, though, emphasized there are no plans to sell Yahoo’s Internet business.
The Yahoo board had been reported to be considering its options on this front this month.
Now (9:22), YHOO is trading at $35.76 per share after a gain of 2.61% so far in pre-market trading.
The reverse spinoff accomplishes essentially the same thing as the older plan by separating the Alibaba stake from the rest of Yahoo.
Yahoo isn’t banking as much money as before because it’s paying more to outside companies in order to generate that revenue. Most of those dollars, though, have been flowing to Google and Facebook.
Mayer said the business she joined in 2012 is different than the one she’s leading today, and touted the improvements in the business through investments in mobile and her acquisitions, including video advertising business BrightRoll and blogging platform Tumblr. The CEO has hired management consultant McKinsey & Co to look for areas of the company to cut, said a person familiar with the matter. While Yahoo believed the transaction would have been tax-free, investors were concerned taxes would be high, and that would have been a drag on stock performance. An exodus of top executives also has increased pressure on the company’s board to consider her future and alternatives to her turnaround attempt, now in its fourth year.
“This is not the first time they have tried to revitalize the core business, and they have failed”, O’Donnell said.
The latest report followed a three-day meeting of Yahoo’s board of directors last week, which concluded on Friday.
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But McAdam said there were no active discussions and that the Yahoo board “is going to have to make some decisions long before we would have any interest”.
