Yahoo finds exit path from Alibaba

US internet company Yahoo will spin off its US$40 billion stake in China’s Alibaba into a separate company.

Existing Yahoo shareholders will receive shares in the new venture, to be called SpinCo, and will then be free to retain the shares or liquidate them.

The innovative solution is designed to minimise taxes and return more cash for shareholders. Yahoo bought its Alibaba stake for just $1 billion in 2005 and it now has a book value of $40 billion – effectively most of Yahoo’s own business value of $45 billion. Yet the Chinese online retail player is not part of Yahoo’s core business model. And Yahoo’s CEO Marissa Mayer is trying to refocus the company on its core operations.

Yahoo has made a massive book profit on the value of its investment in Alibaba which has grown to become China’s largest eCommerce business.

If it sold the stake outright it would face a massive tax bill, severely denting cash returns to shareholders.

“We have actively engaged experts in tax efficient structures over the past two years and have considered a variety of alternatives,” Yahoo CFO, Ken Goldman, said in a statement.

“We remain aligned with our shareholders and our plan is designed to achieve the most advantageous return of capital to Yahoo shareholders with the absolute highest probability of success.”

Yahoo said separately its profit in the fourth quarter fell 52 per cent from a year ago to $US166 million while revenue was essentially flat at $US1.25 billion.

“I’m pleased to report that our performance in the fourth quarter and in 2014 continues to show stability in our core business,” said Mayer.

“Our mobile strategy and focus has transformed Yahoo and yielded significant results.”

The spinoff will take place in the fourth quarter, and remains subject to regulatory approvals.

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