Yahoo! Inc. (YHOO) Will Continue To Exist
Yahoo! Inc. (NASDAQ:YHOO) announced some important decisions in respect of spin-off of its holdings in Alibaba Group Holding Ltd (NYSE:BABA). The company decided to scrap its decision taken in January to spin-off as a separate entity of its holdings in Alibaba. Instead, the company is planning to spin-off its core internet business. The latest decision might involve a complex ‘reverse spin’. There were also contradicting reports about its Internet business with the company not ready to sell its core business while WSJ said that the Pioneer is ready to proceed with the sale. That might be a big blow to its CEO, Marissa Mayer, as her efforts failed to reinvent itself in the smart device age. In any case, one thing is very clear. That is Yahoo will continue to exist.
Fear Of Taxing Investors
There was a sense of fear among Yahoo! Inc. (NASDAQ:YHOO) investors that the spin-off of its stake in the Chinese firm, Alibaba Group Holding Ltd (NYSE:BABA), might attract tax. While announcing the spin-off in January, the company promised it to be a tax-free one at the hands of investors. Also, there was a threat of challenging the spin-off by the tax regulators and that it might hit with a multi-billion expenses bill. Therefore, it preferred to have alternative avenues to unlock the value. That included a reverse spin-off of the web assets along with the stake in Yahoo Japan as a separate entity to be traded as a public company and the potential sale of its core business.
Mayer has stepped into the fourth year in Yahoo! Inc. (NASDAQ:YHOO) and her decision are termed as a rejection of tactics since it failed to offer any meaningful revenue upside. Her tactics were to silence investors by unlocking the value of its investments in Alibaba Group Holding Ltd (NYSE:BABA) through a spin-off. The objective was to borrow some time for reviving the digital ad business or reinventing itself as the digital segment is dominated by Alphabet Inc (NASDAQ:GOOGL), as well as, Facebook Inc (NASDAQ:FB). Now, her tactics have been dumped by citing tax fears among investors. As a result, she needs to evolve fresh tactics to bring back the company.
Tax Bill To be Lower
It is quite logical to think that the same taxation will apply when Yahoo! Inc. (NASDAQ:YHOO) spin-off its Internet business or the sale of its assets. However, the company might have to spend less on tax bill if it selects to adopt both the courses. That was primarily because the Internet business has not achieved any significant appreciation in the recent past. However, that is not the case in respect of divesting its holding in Alibaba Group Holding Ltd (NYSE:BABA) as an independent entity since its valuation has soared.
The move is also a victory for the activist investor, Starboard Value, which sought the dumping of Alibaba spin-off. The activist investor also wanted the company to sell its Internet business. Its contention was that the turnaround would prove to be elusive while its core business value is getting lesser and lesser. The hedge fund said that asking investors to wait for improvement was not the best course of action as it was more hope than a tactic.
Yahoo! Inc. (NASDAQ:YHOO)‘s Chairman, Maynard Webb, has backed its CEO, Marissa Mayer, in her efforts to reinvent the company. He also said that the board has full faith in its leadership team. However, he said that the company was undervalued and its decision would unlock the value. Webb also said that there was no determination to sell the company as a whole or part of it.
On the other hand, WSJ has not only said that Yahoo! Inc. (NASDAQ:YHOO) is planning to sell its Internet business but also reported that Verizon Communications Inc. (NYSE:VZ) has shown interest in acquiring it. However, the company is not ready to jump into the bandwagon straightaway and wants to examine its worth. Private equity companies were also looking at the core business for a potential buyout to revive it by trimming its employees.
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