Yahoo has formally filed to spin off its 15 percent stake in Chinese e-commerce company Alibaba, but it warns shareholders that it cannot guarantee the tax-free transaction they are clamoring for.
In a filing before the Securities and Exchange Commission (SEC), Yahoo named the spin-off company Aabaco Holdings, which will hold the 384 million Alibaba shares worth $32 billion owned by Yahoo. The shares currently account for a huge chunk of Yahoo's value of $36 billion, while its core business accounts for only $4 billion.
Included in the spin-off is Yahoo's small business services division, which provides web hosting and web design services for small businesses. This is a key part of the transaction, as federal law requires that a spin-off must include a fully operating business, and not just stock holdings, for a transaction to qualify as tax-free.
Yahoo CEO Marissa Mayer finally succumbed to shareholder pressure when she announced in January that Yahoo will spin off its Alibaba stock and transfer the value of the stock to shareholders. Doing so would prevent Yahoo from incurring a $10 billion tax that it would otherwise incur if it simply sold the stock and transferred the cash to shareholders.
However, Yahoo says in its SEC filing that it has plans to cancel the spin-off if federal tax authorities did not provide a written assurance that the transaction will be tax-free for shareholders. The warning comes amidst announced plans by the Internal Revenue Service that it might look into the rules allowing corporations to spin off their stock portfolios without paying taxes.
Additionally, Yahoo says the spin-off might not pass the scrutiny of Chinese tax authorities, who instituted a new rule earlier this year that could potentially force Yahoo to pay a 10 percent tax.
The filing comes ahead of Yahoo's upcoming second-quarter earnings report set for a webcast on Tuesday, during which shareholders are likely to grill Mayer with questions about its plans for the proposed spin-off. However, the Yahoo chief has sought to appease investors and reassure them that a tax-free spin-off will go along as planned, and Wall Street seems cautiously pleased for now, with Yahoo shares rising 1.98 percent to $39.68 in after-hours trading following the filing.
Yahoo does not currently provide further details about Aabaco Holdings, and the spin-off's leadership has yet to be named.
The spin-off is part of Mayer's strategy to focus on its core business of search, content and mobile apps, but the Yahoo chief has yet to turn the fortunes of the once most dominant force on the Internet.
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