Yahoo U-Turn: No Alibaba ‘spinoff’ – creates new company instead

10/12/2015

In a surprise reversal, Yahoo will abandon its planned spinoff of its remaining Alibaba shares and instead do a “reverse spinoff” of the rest of Yahoo.

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The company cited ‘uncertainty over tax liability’ as reason the Alibaba spinoff was scrapped.

In the reverse spin off, 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 toYahoo shareholders resulting in two separate publicly-traded companies.

Originally, Yahoo thought the Aabaco (Alibaba + Yahoo Small Business) spinoff would have limited or zero tax implications for the company.

But the Internal Revenue Service declined to provide that reassurance, creating uncertainty and resulting in today’s decision.

The Alibaba shares will still be separated from the main Yahoo business, resulting in two publicly traded companies — just not in the way originally intended.

Yahoo’s current market cap is about $33 billion, but most of that is the Alibaba shares and the company’s part ownership of Yahoo Japan. Yahoo has roughly $6 billion in cash, but the core business is only being valued by the market at roughly $3 billion based on a perception that its advertising business has stalled.

"We believe that the previously announced spin off would be tax free to Yahoo and its shareholders," said Maynard Webb, Chairman of Yahoo's Board of Directors. "However, in consideration of developments since the original spin off plan was announced and after significant deliberations, we are suspending work on the Aabaco spin off. 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.

!Informed by our intimate familiarity with Yahoo's unique circumstances, 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. To achieve this, we will now focus our efforts on the reverse spin off plan."

"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," said Marissa Mayer, CEO of Yahoo. "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."

The reverse spin off is expected to require, among other things, third party consents, preparation of audited financial statements, shareholder approval, and SEC filings and clearance, including under the Investment Company Act of 1940. While the company intends to move expeditiously to complete the transaction, it is advised that complex transactions of this kind can take a year or more to conclude.

Read the official press release here

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