As far as major corporate business goes, this week for Yahoo has had more plot twists than a M Night Shyamalan movie, as it decides to stick with its Alibaba stock, splitting the company in two.
For the last number of months, Yahoo has been battling with the US Internal Revenue Service (IRS) over its continued attempts to spin-off its significant $32bn stake in the Chinese e-commerce giant Alibaba, entirely tax-free, which the IRS was, understandably, none too pleased about.
Until now, however, it was expected that Yahoo would get the deal over the line and offer it some respite as it continues to struggle to maintain its place among the other internet giants, but now the company has undergone a major u-turn and announced that it’s going to keep its Alibaba stock and actually spin-off its core internet business, according to The New York Times.
According to its announcement, it appears that the Yahoo board has been particularly worried over fears that it could face the wrath of the US government for years to come over a move that would see the government lose out on $10bn in taxes.
In the end, spinning off the business that got it to where it is in the first place – search, email, Yahoo Japan, Tumblr – is considered a safer strategy than annoying the US government and Wall Street.
Despite its illustrious history in internet lore, Yahoo’s internet businesses are simply not as valuable as its stake in one of the world’s largest internet powerhouses, Alibaba, with its 15pc stake in the company worth more than four times what the rest of Yahoo’s business is believed to be worth, with analysts’ estimates putting it between $3bn and $8bn.
Sell-off was a no-go
In an investors’ call following the announcement, the chairperson of Yahoo’s board, Maynard Webb, said that they had also considered selling off the internet side of its business, but decided against it after a solid day-and-a-half of board meetings.
“We are convinced as a board that we are very undervalued today, and that the best way to unlock value is to separate out the Alibaba proceeds from the operating business and focus on the continued turnaround in the operating business,” he said.
It certainly appears a defeat for Yahoo’s CEO Marissa Mayer, who has made numerous efforts to prevent stagnation of the business since she came into the job in 2012, through digital media content creation and targeting advertising deals with companies like Google.
Speaking in the announcement, Mayer said of what’s in store for the next year: “In 2016, we will tighten our focus and prioritise investments to drive profitability and long-term growth. A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo’s business.”
Yahoo billboard image via Scott Schiller/Flickr