Activist Urges Yahoo To Halt Spinoff
November 19 2015 - 3:03AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 11/19/15)
By David Benoit and Douglas MacMillan
Starboard Value LP is putting new pressure on Yahoo Inc.,
calling on the company to halt the spinoff of its holdings in
Alibaba Group Holding Ltd. and instead sell its beleaguered
Internet business.
In a letter it sent Yahoo late Wednesday, the activist investor
says Yahoo's planned spinoff of more than $20 billion in shares of
the Chinese e-commerce giant now carries too much risk. That
represents a change from Starboard's stance last year, when it
urged Yahoo to make the separation.
The letter, which was reviewed by The Wall Street Journal,
expresses frustration with Yahoo's response to the activist. Shares
of Yahoo, which is among Starboard's largest positions according to
people familiar with the matter, are down 35% this year.
Yahoo had no immediate comment.
The change in Starboard's position follows the federal
government's decision not to rule on whether the Alibaba spinoff
would incur billions of dollars in taxes.
Yahoo in September pulled its request for such a ruling from the
Internal Revenue Service but said it would continue to pursue the
transaction, as it believed the IRS would eventually side with it.
Going forward without the earlier IRS approval raises the risk that
the agency could challenge the spinoff in a future audit, putting
shareholders on the hook for billions of dollars in taxes.
In October, Yahoo said it expected the spinoff to be completed
in January of next year. Given Yahoo is already far along in the
process and has signaled confidence about the outcome, it's unclear
if the company would reverse course.
While Starboard also continues to believe the spinoff shouldn't
incur taxes, the letter says, it no longer feels comfortable with
the risk that it will.
"If you stay on the current path, we believe the potential
penalty for being wrong is just too great," Starboard wrote.
Instead, Starboard is pushing another idea it floated
previously: that Yahoo keep the stake in Alibaba and Yahoo Japan
and sell the Web properties for which Yahoo is known. While that
would incur its own taxes, the bill would be smaller given the
massive gains on Yahoo's Alibaba shares, Starboard's letter
said.
The activist had previously named AOL Inc. as a combination
partner for Yahoo, but AOL has since agreed to a sale to Verizon
Communications Inc. Starboard doesn't name any new suggested merger
partners in its letter.
The investor is ratcheting up pressure on Yahoo Chief Executive
Marissa Mayer as her effort to turn around the aging Internet
company enters its fourth year with few signs of progress. Ms.
Mayer has tried to position Yahoo as a threat to Google Inc. in Web
search and as a challenger to Netflix Inc. in the emerging area of
online video content, projects that have cost Yahoo hundreds of
millions of dollars but yielded little in the way of users or
revenue.
Over the course of Ms. Mayer's tenure, Yahoo's core business has
shrunk. In 2012, when she arrived, Yahoo sales totaled $4.5
billion. In 2014, they were $4.4 billion.
Yahoo's share of digital ad spending worldwide is expected to
slip to 2.0% this year, down from a 3.4% share in 2012, according
to eMarketer Inc.
On an earnings call with analysts in October, Ms. Mayer signaled
Yahoo will adopt a new strategy to "reset" the company's focus on
fewer areas and shift further into mobile. Ms. Mayer has said she
plans to articulate the new direction when the company announces
fourth-quarter earnings in January, if not sooner.
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(END) Dow Jones Newswires
November 19, 2015 02:48 ET (07:48 GMT)
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