Yahoo has faced pressure from activist investor Starboard Value LP to sell the core business rather than proceed with the planned spin-off of its stake in Alibaba, which could trigger large tax payments. If Yahoo pushed through with it, It would have been billed $13.3 billion in tax, which was big enough to spook shareholders into fighting against the proposal.
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“The bottom line is the saga continues”, Macquarie Securities analyst Ben Schachter wrote in a Wednesday note titled “The Never-Ending Story”.
Investors who had initially pushed for the spinoff grew concerned about the transaction when Yahoo failed to get prior approval from the U.S. IRS on its tax-free status.
Yahoo’s core business business has suffered over the past few years, as Mayer struggles to stem the company’s falling revenue.
With Yahoo hanging in limbo, prospective bidders could emerge for the company’s Internet operations, which Wall Street has been valuing at next to nothing amid a decline in revenue.
Yahoo has thrown out plans to spinoff their share in Alibaba, worth about US$31 billion. On Monday, the Chief Financial Officer of Verizon Communications Inc (VZ.N) said the No. 1 USA wireless carrier could look at buying Yahoo’s core business, but made no mention of a price. “Informed by our intimate familiarity with Yahoo’s unique circumstances, the board remains committed to accomplishing the significant business purposes and shareholder benefits that can be realized by separating the Alibaba stake from the rest of Yahoo”. Yahoo shares fell as much as 4.9 per cent, before recovering somewhat to end the day down 1.3 per cent at US$34.40.
The chief executive of CBS, Leslie Moonves, said the media company would not pursue Yahoo, speaking at an event earlier this month.
The change of heart comes after Yahoo’s board met last week to review the proposed Alibaba spinoff, as well as CEO Marissa Mayer’s stalled attempts to turn around one of the Internet’s best-known companies.
“Once they make a decision, there might be assets that would fit together with AOL”, McAdam told CNBC. The company disclosed Wednesday that Paypal co-founder Max Levchin, a director recruited by Mayer, is resigning from the board to concentrate on running his latest financial services startup.
Jeffrey Smith’s Starboard Value raised concerns about the tax status of the Alibaba spin in a November letter, and urged Yahoo! to explore a sale of its core business.
Rumours Yahoo has been considering spinning off Alibaba have been circulating for a number of months, resulting in a recent seven percent spike in the company’s shares.
What Yahoo, under Mayer’s guidance, needs to do now is crisply define its business, cut costs, and notch some real wins in its earnings report. That business would be distributed to Yahoo shareholders.
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That raised the specter of Yahoo being hit with a tax bill of more than $10 billion on an investment now worth about $32 billion. SoftBank CEO Masayoshi Son would likely want to control the outcome of Yahoo’s $8.6 billion stake in Yahoo Japan, to ensure it doesn’t fall into the hands of an adversary, as it accounts for nearly a quarter of SoftBank’s operating profits.
