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Yahoo to spin off Alibaba stake tax-free as public company

Wednesday, January 28, 2015 - 06:33

[SAN FRANCISCO] Yahoo shares jumped Tuesday after the Web company announced a tax-free spinoff of its entire stake in Alibaba Group Holding, seeking to maximise its return of cash to shareholders and minimize taxes on the sale.

The deal with the Chinese e-commerce company will put Yahoo's Alibaba shares into a newly registered company called SpinCo, which will own all of Yahoo's remaining 384 million shares of Alibaba value at US$40 billion, the Sunnyvale, California-based company said in a statement Tuesday. SpinCo will be distributed to existing Yahoo shareholders as a separate public company.

Chief executive officer Marissa Mayer is taking the steps after Starboard Value and other investors pushed her to return cash to shareholders, find ways to cut taxes and avoid major acquisitions.

The roughly US$45 billion in Asian assets have supported Yahoo's value in the past two years and given Mayer, who became CEO in 2012, cover from shareholder pressure as she worked to turn around Yahoo. Now, with a disposal plan in place, the focus will shift back to whether Mayer can revive revenue, which has been stagnant for five years.

"It's all about Alibaba," said Brian Wieser, an analyst at Pivotal Research Group LLC. "It's all that investors have been focused on." Shares of Yahoo rose as much as 10 per cent in extended trading. The stock, which declined 2.9 per cent to US$47.99 at the close in New York, rose 25 per cent in 2014.

The spinoff deal will be completed in the fourth quarter, after the expiration of Yahoo's one-year lock-up agreement on the Alibaba shares, Yahoo said in the statement.

The company also reported results for its fourth quarter, with sales, excluding revenue shared with partner websites, fell 1.8 per cent to US$1.18 billion in the fourth quarter. Profit, excluding items such as stock-based compensation, was 30 cents a share. Analysts projected, on average, sales of US$1.18 billion and profit of 29 cents, according to data compiled by Bloomberg.

Mayer, seeking to drive a recovery since she arrived in July 2012, has been investing in products, partnerships and ad services to expand Yahoo's reach and restore growth, including on mobile devices where users increasingly access digital content.

While Mayer has touted efforts to boost the core business, investors have focused on her stake of about 15 per cent in Alibaba. The company, which formerly owned more than 20 per cent, sold US$10 billion in shares in September as part of the Chinese company's initial public offering. Yahoo, which paid about US$3 billion in taxes on that sale, had said it plans to return at least half of the proceeds to shareholders.

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