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Yahoo announces tax-free spinoff of Alibaba stake

28 january 2015, 16:16
0
Photo courtesy of clubic.com
Photo courtesy of clubic.com

 Yahoo is spinning off its stake in Chinese Internet giant Alibaba, splitting off the valuable holdings in a move that sidesteps taxes, AFP reports.

The strategy laid out on Tuesday aims to deliver more cash for shareholders than an outright sale of the $40-billion stake, avoiding a hefty tax bill, and to help Yahoo's efforts to refocus under chief executive Marissa Mayer.

Mayer told a conference call the deal "maximizes value for shareholders" and avoids a potential tax bill of up to $16 billion under a traditional sale of the stake.

She said the move is part of a broader effort to help Yahoo's "remixing" of its activities around mobile Internet, video and other forms of online media.

The spinoff creates a new entity to hold Alibaba shares, in a move responding to concerns of activist shareholders who want the struggling California group to extract value from the holdings.

Shares in Yahoo jumped 6.69 percent to $51.20 in after-hours trading as investors cheered the move.

Yahoo said its board authorized creation of an independent investment company called SpinCo to hold the Alibaba shares. SpinCo would be totally owned by Yahoo shareholders.

Yahoo's current market value is about $45 billion, most of which is in Alibaba shares. Yahoo bought a 40-percent stake in the Chinese online giant in 2005 for $1 billion.

Yahoo chief finance officer Ken Goldman said the plan is a "unique spinoff" that places the Alibaba stake in a registered investment company in a "clean transaction."

Yahoo will continue to operate its core business and hold its 35.5 percent stake in Yahoo Japan.

Goldman said Yahoo is "open minded about alternatives for value creation" of the stake in Yahoo Japan, whose value is estimated at $7 billion.

    Profits lower 

 Yahoo said separately its profit in the fourth quarter fell 52 percent from a year ago to $166 million while revenue was essentially flat at $1.25 billion.

"Our performance in the fourth quarter and in 2014 continues to show stability in our core business," said Mayer.

Revenue from users accessing Yahoo sites on mobile devices rose some 23 percent in the quarter to $254 million, highlighting the company's effort to connect with users on the go.

Yahoo also struck a deal to be the primary search engine for the Mozilla Firefox browser in North America, which should help it compete against market leader Google in search and related advertising revenues.

Microsoft Bing powers Yahoo searches in an alliance struck by the companies.

"Our new partnership with Mozilla gives us reason to be optimistic," Mayer said of Yahoo gaining ground in a valuable online search market dominated by Google.

The Alibaba spinoff will add to the $9.7 billion already returned to shareholders from Alibaba and bring the total amount to nearly $50 billion.

Yahoo said the spinoff is expected to occur in the fourth quarter, following the end of a "lockup" agreement on the shares with Alibaba.

The deal also requires review by US tax authorities.

Investors were concerned about Yahoo taking a huge tax hit from its sale of Alibaba shares, but the spinoff announced Tuesday was done "elegantly" and should ease those worries, said independent analyst Rob Enderle of Enderle Group in Silicon Valley.

"That was the good news," Enderle said.

"The bad news is that top line and bottom line performance are down, and Mayer needs some kind of sustained growth to take her off the hot seat."

Financial performance of the California-based Internet pioneer had been shielded in the market by its lucrative stake in Alibaba.

That shield has been spun off.

"Yahoo has been protected by how well Alibaba is doing, and they don't get that any more," Enderle said.

"Their own performance hasn't been that good; investors are likely going to take their profits and run."

Yahoo will continue to watch for opportunities to make smart acquisitions, but isn't considering any major buys unless they line up with the company's technology priorities, Mayer said.

Yahoo has bought dozens of startups since Mayer, a former Google executive, took the helm in 2012.

Global Equities Research's Trip Chowdhry referred to Mayer as an "administrative" type of chief executive and gave Yahoo co-founder credit for the company's shrewd stake in Alibaba.

"He's the person who decided to invest in Alibaba and Yahoo Japan," Chowdhry said of Yahoo co-founder Jerry Yang.

Yang made the Alibaba purchase in 2005 before leaving the company in 2012.


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