Yahoo is no longer planning to spin off its remaining stake in Alibaba—worth more than $30 billion—the company confirmed today. Instead, it will now attempt a more-complicated “reverse” spin-off of everything else, namely its core Yahoo business and its large stake in Yahoo Japan.
The goal remains the same: to make the parts worth more than the whole in the eyes of investors.
The process could take “a year or more to conclude,” Yahoo warned. That is, another year of distraction while Yahoo simultaneously tries a difficult turnaround led by CEO Marissa Mayer.
Among other reasons for the delay: It requires consent from other parties, such as SoftBank (its Yahoo Japan partner), other companies under contract, and certain other stakeholders, Yahoo CFO Ken Goldman said on a conference call today (Dec. 9) announcing the change in strategy. Yahoo first aimed for a more straightforward spin-off because it would not have needed that third-party consent. And while it has now shelved that move because of potential tax risks, Yahoo’s CFO said he believed it was the right strategy to pursue. “I don’t think we’d do anything differently,” Goldman said.
So, why not just distribute the Alibaba shares and let people deal with paying taxes? That would be considered a taxable dividend to Yahoo and further taxable to its shareholders, Mayer said, resulting in a “lack of efficiency” the company is trying to avoid. (Yet, how do you weigh that “inefficiency” versus the overall drag this is taking on Yahoo?)
Why not sell outright? In what sounded like a pre-written response to an obvious question, Yahoo chairman Maynard Webb said there is “no determination by the board to sell the company or any part of it.” (In non-spinoff news, Yahoo director Max Levchin, former Google executive and PayPal co-founder, is leaving the board.)
Yahoo is focused on unlocking value by spinning off the Alibaba stake and “transforming operational businesses,” Webb said. That is, Mayer’s turnaround effort—a focus on mobile and video, digital “magazines,” buying Tumblr, Katie Couric, etc.—which has resulted in some growth but not enough to offset the rest of the company’s decline. Yahoo promised an update on its 2016 strategy on its next earnings call, expected in January.
Investors are still digesting the news. Yahoo shares are up less than 1% in early trading.