Yahoo plans to spin off its $40 billion stake in Alibaba
Yahoo Inc is spinning off its 15 percent stake in the Chinese tech giant Alibaba Group Holding Ltd. Yahoo has been pressured by its shareholders to hand over its investment in Alibaba – valued at around $40 billion.
In after hours trading on Tuesday shares of Yahoo surged 7 percent to $51.45 after the announcement of the tax-free spin off as well as earnings results that were ahead of analysts forecasts.
Shareholders believe that Yahoo and its Alibaba stake would be valued more separately, as long as the shares are not subject to the standard 35 percent tax rate from selling them.
BGC Partners analyst Colin Gillis, told Reuters:
“It’s the best possible outcome. 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.”
The California based tech company has a market value of approximately $45 billion and its stake in Alibaba is worth upwards of $40 billion. This means that the current share price of Yahoo only depends slightly on the value of its core business.
Various investors believe that the company’s email, Website and other operations are worth between $7 billion to $8 billion.
The spin-off will give Yahoo the opportunity to restructure itself and increase pressure on CEO Marissa Mayer to give a boost to Yahoo’s core media and advertising business.
Yahoo’s revenue, excluding feed paid to partners, dropped 1.8 percent (year-on-year) in the last three months of 2014 to $1.18 billion, a bit shy of Wall Street expectations. Analysts polled by Thomson Reuters I/B/E/S expected adjusted revenue of $1.185 billion.
The company posted earnings of 30 cents per share in the fourth quarter, which was a penny higher than what analysts had forecast, according to the Thomson Reuters I/B/E/S poll.
Yahoo’s board of directors have given the green light to spin off its stake in Alibaba into a new independent registered investment firm. The stock of the company will be distributed pro-rata to Yahoo shareholders.
According to Yahoo, the transaction is expected to go through in the fourth quarter of 2015. It will include all 384 million shares that Yahoo has in Alibaba, in addition to an unspecified “legacy, ancillary” Yahoo business.
J.P. Morgan Securities, Bank of America Merrill Lynch, and Goldman Sachs & Co are serving as financial advisors on the transaction.