Yahoo CEO Marissa Mayer is spinning off the company’s $39 billion stake in China’s Alibaba Group Holding in a move that wards off a potential shareholder rebellion.
The highly anticipated decision announced Tuesday will enable Yahoo to avoid paying billions of dollars in future taxes while intensifying the pressure on Mayer to prove she can rejuvenate one of the internet’s oldest and best-known companies.
A newly formed entity called SpinCo will inherit ownership of Yahoo’s 384 million Alibaba shares when the tax-free spinoff is completed toward the end of this year.
Existing Yahoo shareholders will receive stock in SpinCo, which will be designated as a registered investment company. The breakup is being set up so SpinCo’s gains from the sale of Alibaba stock will be taxed as a lower rate than Yahoo Inc. would have paid had it held on to the stake.
Yahoo stockholders cheered Mayer’s plan as the company’s shares gained $3.44, or more than 7%, to $51.43 in extended trading.
The spinoff overshadowed Yahoo’s results for the final three months of last year. The fourth-quarter numbers showed Yahoo is still struggling to grow, even as more advertising shifts to the Internet and mobile devices.
Yahoo earned $166 million, or 17 cents per share, a 52% drop from the same period in the previous year. If not for certain charges, Yahoo said it would have earned 30 cents per share – a penny above the average estimate of analysts surveyed by FactSet.
The company’s revenue dipped 1% to $1.25 billion. After subtracting ad commissions, Yahoo’s revenue totalled $1.18 billion, another small decline from the previous year and slightly below analysts’ projections.
It marks the eighth time in Mayer’s 10 quarters as Yahoo’s CEO that the company’s revenue has declined from the previous year.
Yahoo Inc. invested just $1 billion in Alibaba nearly a decade ago, a bargain that slapped the company with massive tax bills as it whittled its stake during the past three years. Without the spinoff, Mayer estimated that Yahoo’s tax bills on its Alibaba stake would have been about $16 billion, based on Alibaba’s current market value.
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.
The Alibaba investment is worth far more than Yahoo’s own online services, which have been struggling to generate more revenue for the past six years while rivals Google Inc. and Facebook Inc. grabbed a bigger piece of digital marketing budgets.
Yahoo sold nearly $9.5 billion worth of stock in Alibaba’s initial public offering, triggering more than $3 billion in taxes.
