Yahoo to spin off core business into new company

Nathan Bomey and Mike Snider | USA TODAY

Show Caption Hide Caption Yahoo will consider selling its core business Yahoo finally came out with the news everyone was waiting for: it will at least consider selling its core business.

Yahoo is putting a new spin on its future.

The online media company on Wednesday said that it is abandoning a plan to spin off its Alibaba stake into a separate company, a strategy announced nearly a year ago, and will instead potentially spin off its core business.

The move comes after growing concerns that the proposed spinoff of the Alibaba stake, which is worth more than $30 billion, could bring about a substantial tax bill.

Instead, Yahoo will weigh a spinoff of its core business, which includes its advertising, search technology, Yahoo Sports and the Tumblr blogging platform.

It marks a different kind of turnaround than the one hoped for when Marissa Mayer, an early Google employee credited with some major successes, arrived at Yahoo more than three years ago to take the helm as CEO. Over that time, Yahoo has seen its share of global online search and display advertising whittled down by competitors Google and Facebook to less than 5%, according to research firm eMarketer.

A luminous bright spot for Yahoo: its 15% stake in Chinese e-tailing giant Alibaba. The company acquired a 40% stake in 2005 for $1 billion. Its remaining Alibaba shares nearly match Yahoo's current market cap of $32.3 billion.

"With a large portion of our market capitalization driven by our Alibaba stake, a separation will provide greater transparency to ensure that Yahoo’s business operations are accurately valued, especially as we continue to improve Yahoo’s products and operations," Mayer said during a conference call Wednesday with analysts.

The deal, which would require shareholder approval, could take more than a year to complete, Yahoo said.

That timeline could have lead to traders' lackluster response to Yahoo's news. After rising in pre-market trading, Yahoo (YHOO) shares closed down 1.3% to $34.40 Wednesday. Alibaba (BABA) shares fell 1.1% to $83.42.

Yahoo's move did meet with approval from Wall Street analysts. "We think this is a reasonable decision, given the considerable tax-related uncertainties around the (Alibaba stake) spin-off," said Scott Kessler, equity analyst with S&P Capital IQ. In a note to clients Wednesday, he reiterated a "Buy" option on Yahoo stock with a 12-month target of $38.

SunTrust Robinson Humphrey Internet equity analyst Robert Peck said that "we applaud the board for looking to: optimize company structure, minimize risk, and maximize shareholder value." He reiterated a $40 target price for Yahoo shares in a note Wednesday.

Yahoo's core business, which includes advertising and search technology, as well as a growing content library, could fetch $6 billion to $8 billion, Peck estimates. Its properties 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.

This new proposed move, dubbed a reverse spin, would accomplish the same objective as company's initial proposal: splitting the lucrative Alibaba stake and the Yahoo core business into separate entities. The reverse spin is "effectively, an operational mirror image of the original proposal," said Yahoo chief finance officer Ken Goldman. "Our goal remains the same as it ever was, to separate our Alibaba stake from our business to realize benefits for our shareholders."

The two companies would each be publicly traded, Yahoo said.

The Yahoo board voted unanimously to suspend the Alibaba stake spin-off and to pursue a reverse spin, Yahoo chairman Maynard Webb said during the conference call. "The board has complete confidence in the management team and the leadership of Yahoo and believes the company is making important strides toward its transformation," he said.

PayPal co-founder and board member Max Levchin is stepping down, but reaffirmed his confidence in Mayer and Yahoo in a statement published to Twitter Wednesday.

1/ For the avoidance of doubt: I remain a fan and supporter of Yahoo, Marissa, her dedicated team, and the board. They personify commitment. — Max Levchin (@mlevchin) December 9, 2015

Follow USA TODAY reporter Mike Snider on Twitter at @mikesnider and Nathan Bomey @nathanBomey.