Yahoo on Wednesday confirmed that it was scrapping its plan to spin off its stake in Chinese e-commerce giant Alibaba Group and would instead explore different ways of separating the stake, particularly a spin of its core businesses.
Investors have grown concerned about the potential tax risk of the Alibaba stake spin. Yahoo chairman Maynard Webb said Wednesday that the company believed the Alibaba stake spinoff would have been tax-free, but he acknowledged that “we were concerned about the market’s perception of tax risk, which would have impaired the value” of the separated company.
Yahoo’s board will “now evaluate alternative transaction structures to separate the Alibaba stake, focusing specifically on a reverse of the previously announced spin transaction,” the company said before the stock market opened. “In the reverse spinoff, Yahoo’s assets and liabilities other than the Alibaba stake would be transferred to a newly formed company, the stock of which would be distributed pro rata to Yahoo shareholders resulting in two separate publicly traded companies.”
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. “There’s no determination by the board to sell the company or any part of it,” Webb said when asked about a sale of the core business.
“We believe that the business is very under-valued, and we’re focused on unlocking that value by separating our assets … and working on transforming our operational businesses,” he added. Yahoo CEO Marissa Mayer on the call also stressed the importance of “delivering shareholder value” by separating out the Alibaba stake to unlock hidden stock value in the company.
“With a large part of our market capitalization driven by our Alibaba stake, a separation will provide greater transparency to ensure that Yahoo’s business operations are accurately valued, especially as we continue to improve Yahoo’s products and operations,” said Mayer.
Yahoo’s planned reverse spin transaction would result in two separate publicly traded companies. The company said the transaction could take a year or more. Yahoo has a market capitalization of about $35 billion, with much of that driven by its stakes in Alibaba and Yahoo Japan.
“In addition to our efforts to increase value and diminish uncertainty for investors, the ultimate separation of our Alibaba stake will be important to our continued business transformation,” Mayer said earlier in a statement. “In 2016, we will tighten our focus and prioritize investments to drive profitability and long-term growth. A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo’s business.”
Yahoo had a board meeting last week amid pressure from activist investor Starboard, which said last month that the Alibaba spinoff was too risky and urged the company to instead find a buyer for its core Internet business.
Yahoo’s stock rose in pre-market trading.