The beleaguered internet giant on Wednesday announced that its board of directors had unanimously decided to suspend work on the pending plan, unveiled last January and dubbed Aabaco Holdings. Instead, the company intends to explore “alternative transaction structures” to separate the 15 percent stake from the rest of the business in a reverse spinoff that would transfer Yahoo’s core assets and liabilities to a newly formed company.
The original plan was proposed by CEO Marissa Mayer as the most tax-efficient way of unlocking the value of the 384 million shares the company owns in the Chinese e-commerce behemoth, but an Internal Revenue Service (IRS) official had warned in May that the transaction might not be tax-free. Chairman Maynard Webb, however, said that wasn’t the reason for the change of heart.
“Among other factors, we were concerned about the market’s perception of tax risk, which would have impaired the value of Aabaco stock until resolved,” Webb said in a statement. “Informed by our intimate familiarity with Yahoo’s unique circumstances, the board remains committed to accomplishing the significant business purposes and shareholder benefits that can be realized by separating the Alibaba stake from the rest of Yahoo.”
But the reverse spinoff won’t be without snags. It’s expected to require, among other things, audited financial statements, third party consents and shareholder approval.
“In addition to our efforts to increase value and diminish uncertainty for investors, the ultimate separation of our Alibaba stake will be important to our continued business transformation,” Mayer stated. “In 2016, we will tighten our focus and prioritize 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.”
The company expects the transaction to take at least a year to complete. Yahoo shares gained more than 2 percent in premarket trading following the news after slipping 29 percent over the year.