Yahoo Shelves Plan to Spin off Alibaba Stake

The company cites tax considerations in deciding to focus instead on a reverse spinoff of its $23 billion investment.
Katie Kuehner-HebertDecember 9, 2015

Yahoo said Wednesday it was suspending plans to spin off its $23 billion stake in Chinese e-commerce giant Alibaba Group largely because of tax considerations and instead would focus on a reverse spinoff.

Yahoo’s assets and liabilities other than the Alibaba stake would be transferred to a newly formed company, shares in which would be distributed pro rata to Yahoo stockholders, resulting in two separate publicly-traded companies.

Yahoo had originally proposed in January to spin off its Alibaba stake into a new company to be named Aabaco, but in September the IRS declined to rule on whether the transaction would be tax-free.

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“Among other factors, we were concerned about the market’s perception of tax risk, which would have impaired the value of Aabaco stock until resolved,” Yahoo Chairman Maynard Webb explained in a news release.

“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,” he added. “To achieve this, we will now focus our efforts on the reverse spin off plan.”

The difference between no tax on the Alibaba stake and a 40% capital gains tax was more than $9 billion, according to CNBC.

Yahoo’s move met with approval from Wall Street analysts. “We think this is a reasonable decision, given the considerable tax-related uncertainties around the [Alibaba stake] spin-off,”  Scott Kessler, equity analyst with S&P Capital IQ, said in a note to clients.

“We applaud the board for looking to optimize company structure, minimize risk, and maximize shareholder value,” Robert Peck of SunTrust Robinson Humphreys said, adding that other options the company could consider include selling the core Internet business.

According to FBR & Co., an equity analysis firm, AT&T and Verizon could be possible buyers for the core assets, which include advertising and search technology, as well as a growing content library. Peck estimates it could fetch $6 billion to $8 billion.