As Yahoo CEO Marissa Mayer struggles to turn Yahoo around, she's making one decision that promises to make shareholders happy: she's intent on spinning off Yahoo's 15 percent stake in Alibaba to avoid a big tax bill.
Yahoo's chief announced plans late Tuesday to create a new company, SpinCo, effectively saving Yahoo billions of dollars.
"Throughout my tenure with the company, we have worked tirelessly on a tax-efficient alternative that would maximize the value of our Alibaba investment for our shareholders," said Mayer in a statement about the spin-off. "A tax-free spin off accomplishes this and delivers value directly and exclusively to our shareholders."
Investors have been waiting for Mayer to make an announcement related to extracting value from its Asian assets, which represent a majority of the company's $47 billion value.
The spin-off is expected to be finalized in the fourth quarter. Yahoo will continue to operate its business and retain its 35.5 percent interest in Yahoo Japan, and SpinCo will retain Yahoo's shares in Alibaba, China's biggest e-commerce company. SpinCo will be publically traded as a separate entity. SpinCo will retain no debt in the transaction.
"The stock of the new company will be distributed pro rata to Yahoo shareholders, resulting in SpinCo becoming a separate publicly traded company," said the company in its statement.
Investors appear happy with the decision, with a robust 7 percent increase in shares following the news.
While the tax advantages will certainly be good for Yahoo, the move will also allow the company to streamline and strengthen its core businesses in media and advertising, according to the statement.
Yahoo has seen a 1.8 decrease of revenue year-on-year in the last three months of 2014, declining to $1.18 billion, slightly less than Wall Street expectations. The decline in revenue highlights a growing pressure for Yahoo to prove it can compete with Google and Facebook in the advertising industry.
The spin off news comes after several attempts by Yahoo to jump-start its business, especially in advertising. In August it bought Flurry, a mobile analytics company, and put Flurry Chief Product Officer Prashant Fuloria in charge of advertising.
In November, Yahoo announced it had partnered with Mozilla to be the default search engine on the popular Firefox Internet browser, helping it gain almost 2 percentage points of the market share from Google.
