The sale of the Core Business would leave Yahoo’s ownership stakes in Alibaba Group and Yahoo Japan and cash in the remaining company.
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The hedge fund had supported the sale of Yahoo’s stake in Alibaba, worth more than $20 billion, before the U.S. Internal Revenue Service in September denied a request for a private letter ruling on whether the spinoff would be tax free. The latest letter from Starboard represents a drastic change from its stance a year ago, when it publicly urged Yahoo to fast-track the separation.
Starboard reached out to Yahoo with its concerns in a letter on Thursday, and has made the letter public.
Yahoo’s shareholders could end up paying roughly $12 billion in taxes if the IRS deems the transaction taxable after the spinoff, expected to close by end-December.
It said Yahoo shareholders would benefit from a sale because “the cash generated from the core business sale can be returned to shareholders in a tax efficient manner in a few combination of share buybacks, returns of capital, and dividends”.
Starboard says management has said that selling the core business now would preempt the value their turnaround is about to create. Starboard said that a better deal would be to sell its search and advertising business because executives at the company haven’t been able to turn the business around.
Smith said instead of pursuing the spin-off, Yahoo should sell its core business, which would return more money to shareholders. We discussed in detail our thoughts on the deterioration of the Core Business in the letter we sent to you on August 10, 2015 (starboardvalue.com/publications/Starboard_Value_LP_Letter_to_YHOO_08.10.15.pdf).
Yahoo declined to comment.
“I think the investors are not particularly likely to give a lot of credit to the board of Yahoo, as it stands now”, Pivotal Research Group analyst Brian Wieser said. Yahoo stock is down 34% since the Alibaba spinoff was announced January 27.
The Wall Street Journal had reported Starboard’s plans earlier on Thursday. (“Aabaco Holdings”) is not Yahoo’s best alternative. Starboard was the one urging Yahoo to sell its large holdings in Alibaba and Yahoo Japan as early as last year: “Mayer obliged, and the company has been working on the massive spin-off all year”.
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This new pressure on Yahoo comes after a report less than two weeks ago that the company has hired McKinsey & Co.as part of a big reorganization, as Michelle Quinn wrote.
