On January 27th this year an announcement that Yahoo would be spinning off their Alibaba shares into a new company called ‘Spinco’ sent their stock price soaring almost 8% in after hours trading.
Today, it’s grim news for investors.
Yahoo disclosed in a filing that it has dropped its request to spin off the shares on September 2nd, when the IRS had decided to not grant them approval for the tax free spin off.
Despite the bad news, the filing noted that Yahoo would continue to seek ways to spin off the shares.
Yahoo has been fielding shareholder pressure to pass on the profits of its multi-billion USD stake in Alibaba Group, previous sales of Alibaba stock had attracted tax bills of close to 40%, which could potentially shear billions from their 15.4% stake in the Chinese e-commerce giant.
To offset the tax, the company had intended to spin off the shares into a separate company, Spinco, which would be a tax free transaction for Yahoo and its investors. They would then divide the shares of the new company among shareholders. Yahoo had intended to contribute a small operational division, in an attempt to show the company would not just represent a bundle of shares.
Yahoo did not make clear in the filing how they would continue to pursue the spinoff, though it’s clear that Yahoo’s current proposed plan has not been cleared. “The IRS notified Yahoo’s counsel that it had determined, in the exercise of its discretion, not to grant the requested ruling,” said Yahoo General Counsel Ron Bell in a filing from Yahoo on Tuesday.
Since the announcement, Yahoo’s stock has fallen 3.3% in after hours trading. It’s bad news for Yahoo CEO Marissa Mayaer, who has been working hard to produce growth after a rough 3-year tenure so far.
Correction: It was noted earlier in this story that the value of the Yahoo stake in Alibaba was $39 billion USD. This was the value of the sock at the time Yahoo originally announced a spin off, though it is no longer worth this amount.
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