Yahoo has said it has dropped plans to sell off its stake in Alibaba Group Holding and will instead evaluate options to spin off its other assets to a newly-formed company.
Its stake in Chinese e-commerce firm Alibaba Group Holding is valued at about $30 billion.
Maynard Webb, chairman, Yahoo, said in a statement it had it initially thought the Alibaba spin-off would be free of taxes to Yahoo and its shareholders, but they are concerned about the “market’s perception of tax risk”.
The company said they company, in a reverse spin-off, will sell its assets and liabilities other than the Alibaba stake into a newly-formed company, “the stock of which will be distributed pro rata to Yahoo shareholders resulting in two separate publicly-traded companies.”
Explaining the rationale behind the decision not to sell Alibaba stake, Webb said: “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.”
The company, however, is clear that the decision on Alibaba stake is not final.
“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.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,” said Marissa Mayer, CEO, Yahoo.
Yahoo owns 35% in Yahoo Japan, valued at about $8.5 billion.
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, Yahoo said.
The company is in a peculiar situation regarding its valuation.
“Yahoo’s market valuation is about $31 billion — but its stakes in Alibaba and Yahoo Japan are worth a combined $38 billion, leaving its core business worth less than zero,” said CNN Money.