Yahoo sets Alibaba stake spinoff plan, shares jump

Tue Jan 27, 2015 8:13pm EST
 
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By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Yahoo Inc (YHOO.O: Quote) 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 rose about 7 percent to $51.45 in after-hours trading on Tuesday, following the tax-free spinoff announcement and earnings which just beat analysts forecasts even as its revenues slightly lagged estimates.

The move to spin off the Alibaba stake satisfies a persistent investor demand, but could also ratchet up pressure on Yahoo Chief Executive Marissa Mayer to make quicker progress in strengthening Yahoo's struggling media and advertising business.

"It's not going to be easy from now on," said B. Riley and Co analyst Sameet Sinha. "She has to perform now. There's nothing shielding her."

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

Yahoo was worth about $45 billion at Tuesday's market close. That includes its Alibaba stake of nearly $40 billion, meaning the current Yahoo share price assigns little value to the core business. Some investors believe the email, website and other operations are worth between $7 billion and $8 billion.

Yahoo, which is trying to reverse a multi-year decline in revenue, has faced increasing investor pressure more than two years after Mayer took the reins to lead a comeback plan.

Activist investor Starboard said in September that it had acquired a significant stake in Yahoo and urged the company to cut costs, consider a merger with AOL Inc AOL.N and quickly "monetize" the Asian assets.   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