Yahoo sets Alibaba stake spinoff plan, shares jump

Tue Jan 27, 2015 5:46pm EST
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By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Yahoo Inc YHOO.O plans to spin off its 15 percent stake in China's Alibaba Group Holding Ltd (BABA.N: Quote), responding to pressure to hand over to shareholders its prized e-commerce investment valued at roughly $40 billion.

Shares of Yahoo were up roughly 7 percent at $51.45 in after-hours trading on Tuesday, following the tax-free spin off announcement and earnings which just beat analysts forecasts even as its revenues slightly lagged estimates.

Shareholders feel that Yahoo and its stake in Alibaba would be worth more separately, so long as the Alibaba shares are not subject to the standard 35 percent tax rate that would be incurred from selling the shares.

"It's the best possible outcome," said BGC Partners analyst Colin Gillis. “The main point is that the money goes to shareholders, it doesn't get spent on acquisitions. They don't want to fritter it away."

Yahoo’s market value is about $45 billion, while its Alibaba stake alone is worth nearly $40 billion, meaning the current Yahoo share price assigns little value to the core business. Some investors believe the email, Web site and other operations are worth between $7 billion and $8 billion.

While the spin-off will hold tax advantages for Yahoo and will allow it to simplify its structure, it will also ratchet up pressure on Chief Executive Marissa Mayer to strengthen Yahoo's core media and advertising business.

Yahoo's revenue, excluding fees paid to partner websites, declined 1.8 percent year-on-year in the final three months of 2014 to $1.18 billion, just shy of Wall Street expectations. The average analyst polled by Thomson Reuters I/B/E/S called for adjusted revenue of $1.185 billion.

Yahoo said it earned 30 cents per share in the fourth quarter, excluding certain items, beating by a penny the consensus forecast of analysts polled by Thomson Reuters I/B/E/S.   Continued...

A Yahoo logo is pictured in front of a building in Rolle, 30 km (19 miles) east of Geneva, in this file picture taken December 12, 2012.  REUTERS/Denis Balibouse