By Douglas MacMillan And John D. McKinnon
Shares of Yahoo Inc. plunged about 8% in the final minutes of
trading on Tuesday on concern the company's plan for a tax-free
spinoff of shares of Alibaba Group Holding Ltd. could face
unexpected regulatory challenges.
An Internal Revenue Service official on Tuesday said the agency
is considering changes to its rules governing spinoffs, Bloomberg
News reported. Isaac Zimbalist, a senior technician reviewer at the
IRS's Office of Associate Chief Counsel, was speaking at D.C. Bar
Association event.
In a statement read at the event, IRS officials said they are
studying the possibility of a rule change but said "we have made no
decisions as to the current ruling practice, as to whether to issue
guidance regarding this aspect and related aspects of spinoffs, or
as to what the substance of any guidance might be."
The matter remains murky for now. Even if there is a change to
the rules, it isn't clear that Yahoo's planned spinoff of its
Alibaba shares would be affected. "Ruling requests that are already
in-house will continue to be handled in the normal fashion for now,
but this may change," the IRS said.
Completing the spinoff is now crucial for Yahoo Chief Executive
Marissa Mayer, who, nearly three years into her tenure has failed
to show meaningful growth in the company's core ad business.
Yahoo's stock gains under Ms. Mayer are largely tied to investors'
growing enthusiasm for its Alibaba stake and the CEO's commitment
to return billions of dollars to shareholders through a
spinoff.
For a spinoff to be tax-free, the IRS requires companies to
include an active, operating business in the group that is being
spun off.
When Yahoo unveiled the spinoff plan in January, its Alibaba
holdings were worth about $40 billion. It said Yahoo Small
Business, a division that sells tools to help small-business owners
market and sell their goods online, would be separated from Yahoo
and added to a new company called SpinCo that would also house the
Alibaba shares. The Yahoo division makes about $50 million in
earnings before interest, taxes, depreciation and amortization, or
less than 4% of Yahoo's total Ebitda last year.
The IRS may start requiring companies to include a substantial
operating business in the group being spun off, Mr. Zimbalist said
in his comments, according to Bloomberg.
"The issue comes down to whether we've dropped a hot dog stand
or a lemonade stand into a business that is primarily publicly
traded stocks, cash and other wonderful things that I call
appreciated property," Zimbalist said, according to the report.
Yahoo expects the spinoff to occur in the fourth quarter.
Appearing at an event organized by J.P. Morgan on Monday, Ms.
Mayer said there is still "a lot of work to do" to ensure the
spinoff goes as planned.
"There's the legal and regulatory work-stream and then there's
the act of actually separating out Yahoo Small Business into a
separate entity and a separate company," Ms. Mayer said, according
to a transcript of her comments. "Things are on track, but there's
a lot of people at Yahoo who are working very hard to make sure
that we are able to set up the entity and get it trading in [the
fourth quarter] the way that we would like."
Write to Douglas MacMillan at douglas.macmillan@wsj.com and John
D. McKinnon at john.mckinnon@wsj.com
Access Investor Kit for JPMorgan Chase & Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US46625H1005
Subscribe to WSJ: http://online.wsj.com?mod=djnwires