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.
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The about-face could mean big changes for hundreds of millions of users who rely on Yahoo websites, services like email and other mobile applications.
The Board will now assess alternative transaction structures to separate the Alibaba stake, focusing specifically on a “reverse” of the previously announced spin transaction.
The deliberations by the Yahoo board were also taking place under the pressure of Starboard Value, an activist hedge fund, who argued that the company should sell its core advertising business and leave its ownership stakes in Alibaba and Yahoo Japan in the existing corporate entity.
The change in Yahoo’s strategy, which follows deliberations by the board over the last week, is the latest effort by Mayer to assuage shareholders. Yahoo’s Chairman, Maynard Webb, stated that the company will proceed, with the divestment during a conference held on Wednesday.
Yahoo, which has a market capitalization of about $35 billion, owes most of its valuation to its stakes in Alibaba and Yahoo Japan Corp. Some investors were also getting fed up with the company’s inability to generate sales growth since Marissa Mayer took over as chief executive officer in 2012. Yahoo’s lawyer, Skadden, Arps, Slate, Meagher & Flom, was willing to give a tax opinion, but the risk became too much.
After what Yahoo says is “careful review and consideration of how to best drive long-term value for shareholders”, the company’s board has unanimously voted to suspend plans to separate Alibaba from the rest of Yahoo. Yahoo shareholders want to reap the gains that the company has made from its Alibaba stock, which it bought a decade ago for a relative pittance. Additionally, by executing a reverse-spin, “Yahoo is effectively prohibited from actively seeking out buyers”, they note, “But it still has a fiduciary duty to engage with any serious buyers that approach with an offer”.
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.
Yahoo has decided against selling off its $32 billion stake in the Chinese e-commerce company Alibaba.
Starboard Value had been agitating for a sale of Yahoo’s core business instead, and it sent a letter to the company last month in which it laid out its reasons.
“While the company intends to move expeditiously to complete the transaction, it is advised that complex transactions of this kind can take a year or more to conclude”, the press release added. After the distribution, Yahoo will still have an extra $1.3 billion to finance acquisitions or hire new talent.
Who has the vision to navigate through the miasma of Mayer’s reign and put a fair value on Yahoo? Yahoo’s stock fell $1.07, or 3.1 percent, to $33.78 in midday trading Wednesday. Yahoo’s stock shed 45 cents to close at $34.40. That idea pleased investors until the Internal Revenue Service declined to rule that the Alibaba spinoff would qualify for a tax exemption.
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But Yahoo.com still ranks fifth in terms of daily visits, according to monitoring firm Alexa, and this could make it an attractive target for a telecom carrier or private equity.
