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Yahoo to Proceed with Alibaba Spinoff Without IRS Approval

Yahoo has said it will proceed with the spinoff of its 15 percent stake in Alibaba into a separate company in the fourth quarter of the year, despite the Internal Revenue System (IRS) recently denying its request for a private letter ruling to confirm whether the transaction would be tax free.

In a filing with the U.S. Securities and Exchange Commission on Monday, the internet giant said its board of directors had authorized the offshoot, dubbed Aabaco Holdings, but warned that shareholders could be hit with some $9 billion in taxes.

Aabaco, originally unveiled in January, was pitched by Yahoo CEO Marissa Mayer as the most tax-efficient way of unlocking the value of the 384 million shares it owns in the Chinese e-commerce company, then worth nearly $40 billion.

But China’s continued slow economic growth and increased competition from the likes of and Yihaodian means Yahoo’s stake in Alibaba is now valued at around $22 billion.

According to Monday’s filing, the transaction is still subject to “a legal opinion with respect to the tax-free treatment of the transaction under U.S. federal tax laws and regulations” from its lawyers at Skadden, Arps, Slate, Meagher & Flom LLP.

A note filed September 8 said the decision by the IRS “would not affect Skadden’s ability to render an opinion that…would satisfy all of the requirements for tax-free treatment.”