Yahoo! Inc. (NASDAQ:YHOO) will no longer pursue a spinoff of its stake in Alibaba Group Holding Ltd (NYSE:BABA). A person familiar with the matter says the board remains skeptical of the tax risks associated with the deal. Instead, the embattled search giant will look to offload its internet business. CNBC also reports the company is considering a number of options for its stakes in Yahoo Japan.
Concerns over Huge Tax Bill
Pulling out of the sale of the Alibaba stakes is a significant change in the executive’s stance. Initially, they had stood by the deal even when asked if the deal would incur taxes.
Yahoo has not yet gotten an approval from the US Internal Revenue Service on its proposed tax-free status. Carrying out a spin-off without the IRS assurance of a tax-free tax transaction could result in a huge tax bill of about $10 billion.
Yahoo’s core internet business is already attracting interest from media and telecommunication companies. Robert Cool birth an analyst at CRT Capital Group believes the business could fetch as much as $3.5 billion. Others, however, value it at less than $2 billion.
Mayer’s faltering Turnaround Plan
A spin-off of the internet business would be an admission by the board that they no longer believe in CEO Marissa Mayer and her turnaround plan. Having taken reigns in 2012, Mayer has struggled to revitalize growth in the company much to the concern of investors as well as the board at large. Mounting activist investor pressure is also making it hard for the company to stick entirely to its turnaround plan.
Mayer is against spinning off the internet business. Instead, she has proposed a plan to spin off Alibaba stakes in a transaction she believes will not involve a huge tax bill. Spinning off the stakes according to the executive, will help prop up Yahoo stock price. As it appears, she might not get her wish as activist investor Starboard is against any deal that involves offloading stakes in the e-commerce giant.
Yahoo has substantially lost ground in the Internet business. Google and Facebook have dented its prospects in digital advertising, considerably affecting the value of its core internet business.