Yahoo! Inc announced on Tuesday its plan to spin-off its 15% stake in the Chinese e-commerce behemoth Alibaba Group Holding after facing shareholder pressure.
The company said it will separate itself from its stake in Alibaba by the fourth quarter of this year. Yahoo! said the spin-off of its $40 billion stake would be tax-free and shareholders will receive a proportion of the new independent registered investment company.
The majority of the internet companys shareholders support the opinion that Yahoo would be performing better without its stake in Alibaba, which represent more than half of Yahoos close to $47 billion market capitalization.
Once the separation is completed, Yahoo will continue to manage its core business and retain control over its 35.5% stake in Yahoo Japan, while the new company, dubbed “SpinCo” in the statement, will own all of Yahoos stake in Alibaba, a legacy operating business and will not assume any debt.
SpinCo would also be an attractive takeover target for Alibaba as it will provide the Chineses company with the opportunity to buyback its shares at a lower tax rate by acquiring the entire new company rather than just purchasing its shares.
Additionally, the Financial Times cited people familiar with the matter, saying that Alibaba is concerned about the spin-off as it might lead to the creation of a shadow market for its US-traded shares.
“There is a serious risk that the new entity will trade at a discount, I can’t see Alibaba being too happy about that . . . I’d be surprised if they didn’t try to buy it back” said one of the sources.
Yahoo initially purchased 40% of Alibaba back in 2005, when the company swapped its Chineses unit and $1 billion for the stake in the e-commerce giant. However, the research engine company reduced it stake to 24% ahead of Alibabas record IPO last year.
“I am proud and happy to announce a plan for a tax-free spin-off of our Alibaba holdings. Throughout my tenure with the company, we have worked tirelessly on a tax-efficient alternative that would maximize the value of our investment for our shareholders,” said Chief Executive Officer Marissa Mayer.
Yahoo! Inc lost 2.93% on Tuesday and closed at $47.99 on the NASDAQ, marking a one-year change of 30.94%. The company is valued at $46.84 billion. Following the news, the stock edged up 6.69% at 9:03 GMT during after-hours trading.
According to the Financial Times, the 33 analysts offering 12-month price targets for Yahoo! have a median target of $53.00, with a high estimate of $63.00 and a low estimate of $15.00. The median estimate represents a 10.44% increase from the last close price.
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