By Douglas MacMillan
Yahoo Inc. warned investors Friday its planned spin-off of
shares in Alibaba Group Holding Ltd. may incur a previously
unexpected tax bill.
In Yahoo's registration statement for Aabaco Holdings Inc., the
new public company that would be created by the spin-off, Yahoo
said its proposal for a tax-free spinoff may still be rejected by
U.S. or Chinese tax regulators. The move would "materially reduce"
the cash it has to distribute to investors, Yahoo said.
Tax concerns have weighed on Yahoo investors since the company
announced its planned spin-off earlier this year. The Internal
Revenue Service said in May that the agency is considering changes
to its rules governing spinoffs, sending Yahoo shares sliding.
Chief Executive Marissa Mayer said at a tech conference last
month she has been "reassured" the proposed changes weren't
directed at Yahoo specifically, and that she believes the proposed
IRS changes wouldn't affect her plan because it has already been
filed.
Still, Yahoo listed the possibility of a rejection by the IRS as
the first "risk factor" in its registration statement for Aabaco.
Yahoo also said it faces "uncertainties" around whether the plan
will qualify for exemption of taxes by Chinese authorities.
Completing the spinoff is important for Ms. 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.
After the spinoff, Aabaco will own about 384 million Alibaba
shares, representing about a 15% stake in the Chinese
electric-commerce giant, and a 100% stake in a new entity that will
own Yahoo Small Business. Those shares are worth about $32 billion
based on Alibaba's Friday closing price of $83.37 on the New York
Stock Exchange.
Aabaco will operate as a closed-end fund, with plans to invest
at least 80% of its total assets in Alibaba shares under normal
market conditions.
--Josh Beckerman contributed to this article.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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