Yahoo to spin off its stake in Alibaba

SAN FRANCISCO – 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 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 an attempt to ensure most SpinCo shareholders profiting from future sales of Alibaba stock will be taxed at a lower rate than Yahoo Inc. would have paid had it held on to the stake, said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting.

Yahoo stockholders cheered Mayer’s plan as the company’s shares gained $3.44, or more than 7 percent, 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 still is 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 percent 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 percent to $1.25 billion. After subtracting ad commissions, Yahoo’s revenue totaled $1.18 billion, another decline from the previous year and slightly below projections.

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 a half years ago.

Yahoo, which is based in Sunnyvale, California, is retaining its nearly 36 percent stake in Yahoo Japan. The stake is currently worth nearly $7 billion, BGC Financial analyst Colin Gillis estimated.