Instead of spinning off its Alibaba holdings, Yahoo Inc now plans to pursue another course that would end up transferring the internet operations that generate virtually all of its revenue into a newly formed company. Alibaba’s shares rose 1.3 percent.
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Last month, activist investor Starboard Value threatened Yahoo with a proxy fight if it refused to drop the spinoff plans.
What is Core Yahoo worth? By seeking users and marketers, Verizon is essentially bulking up to compete with the likes of Facebook Inc. and Google, which are starting to move into the Internet space as a way to drive more users to their online properties.
Despite its illustrious history in internet lore, Yahoo’s internet businesses are simply not as valuable as its stake in one of the world’s largest internet powerhouses, Alibaba, with its 15pc stake in the company worth more than four times what the rest of Yahoo’s business is believed to be worth, with analysts’ estimates putting it between $3bn and $8bn. “I am committed to seeing it through”, she said. In essence, Starboard said that while selling the core business would probably incur some capital gains taxes, those taxes would be lower and more certain than the $10 billion tax bill that could be due from the Alibaba spinoff if the IRS successfully challenged the structure of the deal. Max Levchin, co-founder of PayPal, resigned from the boards of Yahoo, Yelp and Evernote to devote more time to his new venture, Affirm. “And we believe that the best way to unlock that value is by continuing to focus on the turnaround of our operating business and better execution there”.
While Yahoo execs during a morning analyst call didn’t discuss directly a possible sale of the core business, they also didn’t deny an outright sale was possible or likely after completing the reverse spin transaction. Verizon said it could look at buying Yahoo’s core business if it was a strategic fit.
Brett Sappington, director of research at Parks Associates, said one of Yahoo’s biggest mistakes was not making bets in new and innovative areas, like Google and Amazon have.
Yahoo (NASDAQ:YHOO) stock fell 1.3% Wednesday to 34.40.
The backflip is a defeat for Mayer, who was brought aboard in 2012 to revitalise the once-dominant Internet brand that has struggled to find a strategy to return the company to growth. “A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo’s business”.
Yahoo president and CEO Marissa Mayer speaks at the International Consumer Electronics Show in Las Vegas on January 7, 2014.
Roger Kay, analyst at Endpoint Technologies Associates, said the notion of a negative value for Yahoo’s core was an aberration. “But would they be willing to pay a high enough price to get Yahoo to be willing to sell?”
Internet pioneer Yahoo, under pressure from unhappy shareholders and desperate to avoid a huge investment-related tax bill, will break itself apart – just not in the way it had previously planned.
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Yahoo, plus AOL and an established Web-advertising business, would go a long way toward helping the wireless carrier compete with other tech giants, according to Hunter Newby, CEO of Allied Fiber, a closely-held data network company.
