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Yahoo to Spin Off Alibaba Stake Into Separate Company

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Julie Jacobson/APYahoo CEO Marissa Mayer
SAN FRANCISCO -- Yahoo (YHOO) CEO Marissa Mayer is spinning off the company's prized stake in China's Alibaba Group Holding (BABA) in a move that will let Yahoo avoid paying billions in future taxes.

A newly formed entity called SpinCo will inherit ownership of Yahoo's 384 million Alibaba shares when the tax-free spin-off is completed toward the end of this year.

Tuesday's much-anticipated announcement about the management of Yahoo's 15 percent stake in Alibaba overshadowed Yahoo's results for the final three months of last year.

Yahoo's shareholders are far more interested in Mayer's plans for the Alibaba stake because it's currently worth about $39 billion. That's far more than the value of Yahoo's own online services, which have been struggling to generate more revenue for the past six years.

Investments in Alibaba, China's largest e-commerce company, and Yahoo Japan are the main reason Yahoo's stock has more than tripled since Mayer defected from Google to become Yahoo's CEO two-and-half years ago. Yahoo is retaining its nearly 36 percent stake in Yahoo Japan.

The handling of Yahoo's Alibaba stake is so important to shareholders that one activist investor, hedge fudge manager Jeffrey Smith of Starboard Value, has threatened to spearhead an attempt to oust Mayer if she didn't adopt a strategy that minimizes taxes. Smith also has been pressuring Mayer to commit to returning most of any future Alibaba windfalls instead of spending the money to buy other companies -- unless she embraces his call for Yahoo to merge with rival AOL (AOL) Inc. (publisher of this website).

A tax-free spin-off of the Alibaba stake ranked high on Smith's agenda.

Other stockholders also liked Mayer's decision. Yahoo's stock gained $3.49, or more than 7 percent, to $51.48 in extended trading.

 

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