Yahoo to hold off on Alibaba spinoff: report

Mike Snider and Jon Swartz | USA TODAY

Show Caption Hide Caption What's next for Yahoo? Struggling Web media company Yahoo has decided to forego its spinoff of its $30 billion-plus stake in Chinese e-tailing giant Alibaba, according to a report by CNBC. What's next? Laura Mandaro reports.

Struggling Web media company Yahoo has decided to forego its spin-off of its $30 billion-plus stake in Chinese e-tailing giant Alibaba, according to a report by CNBC.

As a result of pressure from shareholders, who are concerned about the tax risks of the spin, the company will not move forward with the share sale and instead will look at a spinoff of Yahoo's core business, CNBC's David Faber said Tuesday, citing persons close to the situation. USA TODAY could not immediately confirm the report.

An announcement could come as soon as Wednesday, CNBC said.

Yahoo will now consider spinning off its core business along with its stake in Yahoo Japan, both of which it could do with much lower risk of tax liability, the Financial Times reported, citing anonymous sources briefed on the situation.

Last week, Yahoo's board met for three days and, as part of the proceedings, heard a presentation from Starboard Value, a major Yahoo investor that has asked the company to scrap its planned spinoff of a 15% stake in Alibaba and instead sell its assets.

Yahoo (YHOO) shares were up more than 2% in after-hours trading to $35.69. Shares closed Tuesday up 0.49% to $34.85.

Yahoo spokeswoman Rebecca Neufeld declined comment on the CNBC report. Maynard Webb, chairman of Yahoo's nine-member board of directors, also declined comment.

Yahoo's core business, which includes its advertising and search technology, as well as a growing content library, could fetch $6 billion to $8 billion, SunTrust Robinson Humphreys Internet equity analyst Robert Peck estimates.

Yahoo's properties, which includes Yahoo Sports and Tumblr, are frequented by more than 1 billion active users each month, and more than 600 million of those years are on mobile, the company says.

The potential for Yahoo to back off from the Alibaba spinoff is "a positive and defining moment for the company," Peck said in an interview. " The board is responding to the possible tax risk and is ultimately seeking "to optimize the company’s structure and seek to maximize value," he said. "I like the fact that they realized that."

Shareholder are already on the alert for hiccups, however. One large shareholder told USA TODAY that he will be closely watching Yahoo's timeline for a sale, which CNBC estimated could take a year.

The shareholder, who declined to be identified because Yahoo's plans are not yet official, also said he will be keeping an eye on the board's plan for Yahoo CEO Marissa Mayer. He would prefer to see Mayer transitioned out of the company to make way for a strategic buyer, which he said he prefers over a private equity buyer.

Who will buy Yahoo? Reports are swirling that Yahoo will sell its core search and display business, but is anyone waiting in line to buy it?

Mayer was brought on to turn the company around in 2012 — a process that included spending money to buy assets and talent. But the turnaround has been both bumpy and costly, leading shareholders to push for the company to pursue alternatives, such as a sale of core assets.

Peck and other analysts have speculated that a range of telecom and media companies could be interested in acquiring Yahoo's search and media assets, including Comcast, AT&T, NewsCorp, Disney (owner of ESPN), CBS or Verizon, which acquired AOL for $4.4 billion in May.

Earlier Tuesday, Verizon CEO Lowell McAdam said his company would explore the possible acquisition of Yahoo, if its board decided to sell, according to Bloomberg. “We’d look at it like anything else,” he said while speaking at the Business Insider Ignition conference in New York.

"That is a telltale sign that several key market players would be interested," Peck said.

The embattled company is considering several options, including the sale of its core Internet business and restructuring of its media business to turn things around, a person familiar with the situation has told USA TODAY.

Back in 2005, Yahoo paid $1 billion for its 15.3% in Alibaba, which today is worth $31.8 billion. Yahoo's current market cap is $32.9 billion.

The company announced earlier this year its plan to spin-off the Alibaba shares as a separate firm called Aabaco Holdings. Since the Internal Revenue Service would not tell the company that its action would not be taxed, there has been some investor concern about the tax risks of the spinoff. Some analysts have estimated that the taxes could approach $20 billion.

That is what has led the board to consider other moves, persons familiar with the situation have told CNBC, according to Faber. Instead, a "reverse spin" of parceling out the core business and the company's stake in Yahoo Japan would leave the Alibaba shares in a virtual holding company, he said.

Follow Mike Snider and Jon Swartz on Twitter: @MikeSnider and @jswartz

Additional reporting by Kaja Whitehouse