By Douglas MacMillan And Lauren Pollock
Yahoo Inc. unveiled plans for a tax-free spinoff of its
remaining stake in Chinese e-commerce giant Alibaba Group Holding
Ltd., heeding calls from some shareholders and activist Starboard
Value LP.
Investors have been eager to hear Yahoo's plans to extract value
from its Asian assets, which represent the vast majority of its
market value, while avoiding a tax bill of billions of dollars.
Shares rose nearly 8% in after-hours trading as investors
cheered the tax-free nature of the deal. Some, however, had hoped
the new company would include Yahoo's stake in its Japan operations
as well.
Instead, the new company will own all of Yahoo's remaining
shares of Alibaba, which are valued at almost $40 billion, and will
assume no debt in the deal.
Yahoo, meanwhile, will hold on to its core business and its
35.5% interest in Yahoo Japan, which is worth about $7 billion.
Yahoo sold shares in Alibaba's initial public offering but still
owned a 15% stake of the Chinese e-commerce giant. Together, the
Alibaba and Yahoo Japan stakes make up the vast majority of Yahoo's
current market capitalization of about $47 billion.
"We have actively engaged experts in tax efficient structures
over the past two years and have considered a variety of
alternatives," Chief Financial Officer Ken Goldman said.
The spinoff could theoretically give Alibaba and others the
ability to acquire the Alibaba shares with a smaller tax bill than
if Yahoo sold the assets out of the parent company. The split could
include several other wrinkles, including the possibility that the
core business could merge with AOL Corp., though Yahoo
representatives have long denied speculation of such a deal.
That tie-up, instead, has been advocated by Starboard, which
also pressured Yahoo to minimize the taxes tied to the Asian
assets. Starboard essentially called for the company to break
itself into two distinct parts, one for its core business of
Internet properties and the other for its holdings in Alibaba and
Yahoo Japan.
A representative from the firm didn't immediately offer comment
on whether it is satisfied with the split--which is expected to
close in the fourth quarter after the expiration of the one-year
lockup agreement on Alibaba's IPO.
The spinoff plans came as Yahoo also reported lower earnings and
revenue for its fourth quarter.
Tuesday's plans could help determine whether embattled Chief
Executive Marissa Mayer buys herself more time with shareholders or
invites a bitter proxy battle that could threaten her job.
Placating investors with the spinoff could buy Ms. Mayer more
time to turn around the company's struggling display-ad
business.
The company reported Tuesday that revenue from display ads,
excluding traffic costs, dropped 5% to $464 million in the fourth
quarter.
While revenue from desktop display ads continues to shrink,
Yahoo has attempted to offset those declines by investing in newer
ad businesses like mobile, social and video.
The company, which reported revenue from mobile for the first
time in the previous quarter, said mobile revenue grew to $254
million in the fourth quarter.
In all, Yahoo's profit slipped to $166 million, or 17 cents a
share, from $348 million, or 33 cents a share, a year earlier.
Excluding one-time items, the company's earnings fell to 30 cents a
share, from 46 cents.
Revenue, minus commission paid to partners for Web traffic,
dropped to $1.18 billion.
Analysts polled by Thomson Reuters predicted per-share earnings
of 29 cents on $1.19 billion in revenue.
Search revenue, excluding traffic costs, was flat at $462
million. Paid clicks increased 10%, and price per click rose
7%.
Write to Douglas MacMillan at douglas.macmillan@wsj.com and
Lauren Pollock at lauren.pollock@wsj.com
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