Yahoo pushes ahead with plan to spin off Alibaba stake

YAHOO is pushing ahead with plans to spin off its stake in Alibaba Group Holding after comments by the IRS (Internal Revenue Service) triggered a share slump amid concerns the deal could hit a snag.

Potential IRS changes to the tax-free treatment of spin-offs should not affect previously filed requests, the web portal said yesterday, adding that Yahoo had already lodged its plan and was still working towards undertaking the transaction in the fourth quarter.

The stock fell 7.6 percent on Tuesday on concerns that Internal Revenue Service changes would affect efforts to exit from Alibaba. The shares recovered somewhat yesterday.

Any obstacle to the spin-off would erode the appeal for shareholders who bought Yahoo betting they essentially would get a tax-free payout when the deal closes.

The spin-off is a critical step for chief executive Marissa Mayer after coming under pressure from Starboard Value and other investors to return cash to shareholders, find ways to cut taxes and avoid major acquisitions. The company’s Asian assets, including a stake in Yahoo Japan, have supported Yahoo’s value, giving Mayer cover as she works to turn around the company.

Yahoo unveiled the plan in January as it seeks to maximise the return of cash to shareholders. The potential change would affect IRS rules for spin-offs by creating new US guidelines that might require a minimum size for active businesses inside the spun-off company.

Potential changes

Isaac Zimbalist, a senior technician reviewer at the IRS office of associate chief counsel (corporate), said on Tuesday that the agency was considering changes to rules concerning spin-offs.

The IRS would hold off on requests for rulings that were received starting on Tuesday as the issue was studied, he said at a DC Bar Association event.

Requests already received will move forward, but that is subject to change. It was not clear what would happen to requests, such as Yahoo’s, that are already in the pipeline.

Yahoo’s plan is to put its Alibaba holding into a new company that will own all of its 384 million shares in the Chinese company as well as an online service for setting up and running small enterprises.

The Alibaba stake was valued at nearly $40 billion (R475bn) when the spin-off was announced. – Bloomberg