Yahoo to Spin Off Core Business Instead of Alibaba Stake

Published by: Andy on 9th Dec 2015 | View all blogs by Andy

Yahoo to Spin Off Core Business Instead of Alibaba Stake

Yahoo Inc. reversed course on Wednesday, caving in to shareholder opposition to its planned spinoff of shares in Alibaba Group Holding Ltd.  Instead, the once-dominant Internet giant will package all of its Web assets into a new publicly traded company, as suggested by activist shareholder Starboard Value.  Investors had expressed concern about the tax implications of the Alibaba divestiture, despite arguments from company leaders that the spinoff would be tax free for shareholders.  The decision to shift focus is considered a major blow for Yahoo CEO Marissa Mayer, who was hired away from Google in 2012 to bring life back into the once-mighty Internet portal.

So far this year, Yahoo shares have plummeted, and were down 31 percent through Tuesday.  The company's revenue, meanwhile, has been stagnant, hovering around levels the company saw in 2006.  As a result, investors ran out of patience and began pressuring the company to sell its Internet businesses.  The board met last week to consider its options, with those discussions continuing early this week.  With the announcement, leadership also offered a warning that the new plan will take time.  Regulatory approvals and updated financial statements will be needed to proceed, and moves of this type often take more than a year to close.  The new plan will involve the spinoff of much of what Yahoo is known for, including the core Internet search business, advertising, Yahoo Sports and the Tumblr blogging service.

"With a large portion 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," remarked Mayer, in a Wednesday conference call with analysts.   Many Wall Street analysts weighed in on Yahoo's new plan, with most approving the decision.  Yahoo's Alibaba stake is worth more than $30 billion, and analysts agreed that shareholders would likely take a hit.  The new move, a number of analysts noted, will achieve the same goal as spinning off the Alibaba stake, as the two entities would be separate either way.  The company did confirm that both of the new companies will be publicly traded.

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