Yahoo's New Game Plan: What You Need to Know
Yahoo will keep Alibaba stake but spin off core businesses.
— -- Yahoo is reversing course on a year-long plan to spin off its $32 billion stake in Chinese e-commerce giant Alibaba and will instead focus on spinning off its core businesses into a new company, Yahoo officials said today.
"Pressure is growing from the Street for value-enhancing moves [and] patience is wearing thin," Daniel Ives, managing director of the technology, media and telecom research group at FBR Capital Markets, told ABC News. "Tech investors have been closely watching this Yahoo situation given the far-reaching tax consequences of its Alibaba stake."
Here's a look at what you need to know about Yahoo's decision today to explore a reverse spin off.
What's the Goal?
Yahoo wants to separate its stake in Alibaba with its core businesses. The move to create a new company called Aabaco Holdings, for Yahoo's stake in Alibaba, was announced in January 2015.
Yahoo's board of directors said in a statement today the plan for a spin-off was being dropped due to concerns regarding "the market's perception of tax risk" -- something they said would have "impaired the value of Aabaco stock until resolved." Instead, the board will pursue something called a "reverse spin off."
Why the Change of Plan?
It was initially believed the Aabaco spin-off could qualify for a tax exemption.
While the idea excited investors, the Internal Revenue Service declined to rule the Aabaco spin-off could qualify for a tax exemption, resulting in the possibility Yahoo could be hit with a massive tax bill
What's a Reverse Spin-Off?
The new game plan will still allow Yahoo to achieve its goal of separating its stake in Alibaba with its other businesses -- only this time, those core businesses, including assets and liabilities, would be broken off into a new company.
Shares from that new company would been be distributed to shareholders pro rata -- meaning they'd receive a proportional amount to the shares they previously owned. The end result is two separate publicly traded companies.
"A separation will provide greater transparency to ensure Yahoo's business operations are accurately valued," Yahoo CEO Marissa Mayer said in a conference call with investors this morning.
When Will This Happen?
The reverse spin-off is a complex move that could take more than a year to complete. It's subject to a long list of approvals, including "third-party consents, preparation of audited financial statements, shareholder approval, and SEC filings and clearance," according to the statement from Yahoo's board.
"I remain convinced Yahoo is on a better path and the right one," Mayer said.
Investors seemed cautiously optimistic about the news. Shares of Yahoo were up 2.4 percent to $35.70 before the marked opened.
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