(Bloomberg) Yahoo! Inc. announced a tax-free spinoff of its stake in Alibaba Group Holding Ltd., seeking to maximize the return of cash to shareholders and triggering a 10 percent jump in the Web portal’s shares.
The deal will put Yahoo’s holding in the Chinese e-commerce company into a newly registered firm called SpinCo, which will own all of Yahoo’s 384 million Alibaba shares valued at $40 billion, the Sunnyvale, California-based company said in a statement Tuesday. Shares in SpinCo will be distributed to existing Yahoo shareholders as a separate public company.
Chief Executive Officer Marissa Mayer is taking the steps after Starboard Value LP and other investors pushed her to return cash to shareholders, find ways to cut taxes and avoid major acquisitions. The Asian assets, including a stake in Yahoo Japan Corp., have supported Yahoo’s value in the past two years and given Mayer, who became CEO in 2012, cover from shareholder pressure as she worked to turn around Yahoo. Now, with a disposal plan in place, the focus will shift back to whether Mayer can revive revenue, which has been stagnant for five years.
“This is a very meaningful move on behalf of management for shareholders,” Colin Gillis, an analyst at BGC Partners, said in an interview. “It means shareholders get the money—it means Yahoo management will not spend the money.”
The shares of Yahoo climbed as much as 10 percent in extended trading. The stock, which declined 2.9 percent to $47.99 at the close in New York, rose 25 percent in 2014.
The spinoff, which will include a “legacy, ancillary Yahoo business,” will be completed in the fourth quarter, after the expiration of Yahoo’s one-year lockup agreement on the Alibaba shares, Yahoo said in the statement. Yahoo didn’t specify what the business will be and said the spinoff would be subject to regulatory approval.
By adopting the spinoff structure, Yahoo will be able to return 97 percent of the proceeds of the Alibaba stake sale to shareholders, Mayer said on a conference call. The legacy business that’s included in the deal has about $50 million in adjusted earnings before interest, taxes, depreciation and amortization, Yahoo said.
Yahoo’s said it will remain “open minded” on its plans for its stake in Yahoo Japan, which is currently valued at about $7 billion.
Yahoo also reported results for its fourth quarter, with sales, excluding revenue shared with partner websites, falling 1.8 percent to $1.18 billion in the fourth quarter. Profit, excluding items such as stock-based compensation, was 30 cents a share. Analysts projected, on average, sales of $1.18 billion and profit of 29 cents, according to data compiled by Bloomberg.
For the first quarter, Yahoo forecast revenue of $1.02 billion to $1.06 billion, short of analysts’ $1.1 billion estimate.
“The core of Yahoo’s business is returning to health and stability,” Mayer said on the call.
Mayer, seeking to drive a recovery since she arrived in July 2012, has been investing in products, partnerships and ad services to expand Yahoo’s reach and restore growth, including on mobile devices where users increasingly access digital content. Mobile revenue for the fourth quarter was $253.8 million, Yahoo said.
While Mayer has touted efforts to boost the core business, investors have focused on her stake of about 15 percent in Alibaba. The company, which formerly owned more than 20 percent, sold about $10 billion in shares in September as part of the Chinese company’s initial public offering. Yahoo, which paid about $3 billion in taxes on that sale, had said it plans to return at least half of the proceeds to shareholders.
“It’s all about Alibaba,” said Brian Wieser, an analyst at Pivotal Research Group LLC. “It’s all that investors have been focused on.”
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