Yahoo scraps Alibaba spinoff
Silicon Valley firm announces plan to maintain stake, move other assets into new entity
Uncertainty over a planned “reverse spinoff” of core Internet assets and a decision to retain a $31-billion (U.S.) stake in Chinese e-commerce giant Alibaba Group clipped shares of Yahoo Inc. in Wednesday trading.
The stock closed down 1.4 per cent after Yahoo unveiled plans to transfer assets other than Alibaba into a newly formed company — a transaction requiring layers of approval that could take a year to execute.
The stock of the new entity would be distributed to Yahoo shareholders resulting in two separate publicly traded companies. The move could make the core business easier to sell although the company, under pressure from activist investors to boost share value, says a sale is not its preferred option.
“The ultimate separation of our Alibaba stake will be important to our continued transformation,” CEO Marissa Mayer said in statement Wednesday. “In 2016, we will tighten our focus and prioritize investments to drive profitability and long-term growth.”
Mayer told analysts on a conference call that the spinoff will make it easier to gauge the value of the assets apart from the 15-per-cent Alibaba Group stake and Yahoo Japan holdings which together represent $25 billion of Yahoo’s $34-billion market capitalization.
Yahoo’s core businesses include sports, finance and news websites along with ad display and mobile-search technologies.
Yahoo.com, which still ranks fifth in terms of daily visits, could be an attractive target for a telecom, media or private equity buyer and U.S. carrier Verizon on Monday said it would consider an acquisition. SunTrust Robinson Humphreys analyst Robert Peck values Yahoo’s core business at $6 billion to $8 billion.
Mayer said the company’s focus remains on transforming struggling operations with an emphasis on mobile video offerings.
Yahoo has downgraded revenue-growth projections amid competition from Alphabet Inc.’s Google and Facebook, but the Yahoo board said it continues to support Mayers’ leadership and has no plan to sell the company in whole or in part.
“We believe the business is undervalued,” said chair Maynard Webb.
He said Yahoo also believes the previous plan to spin off the Alibaba stake would have been tax free, but “we were concerned about the market’s perception of tax risk, which would have impaired the value” of the spinoff’s stock.
Mayer is expected to update Yahoo’s growth strategy when the company reports fourth-quarter results next month and analysts say the plan could include a jettisoning of underperforming business units.