Under the spinoff plan, which was announced early this year, all outstanding shares of Aabaco will be distributed to Yahoo stock holders.
Yahoo’s plan for its stake in Alibaba, which pulled off the biggest initial public offering ever past year, hit a roadblock in May when the IRS said it was considering rule changes around spinoffs.
Yahoo had sent a private letter to the IRS executives seeking green signal for the spin off. This was done to satisfy their investors, in particular. But an IRS official later indicated that any amendments would not apply retroactively, implying that Yahoo’s spin off could be tax free. About 4% increases in shares resulting to $28.71 of the Company have been reported in extended USA trading. Either way, the transaction shouldn’t have an impact on taxpayers, as only Yahoo and its shareholders would be responsible for paying the tax obligation.
Shares of Yahoo, which have fallen about 45 per cent this year, touched a high of $29.23 on the Nasdaq.
However, long term this deal will ultimately undermine Yahoo and will force the company to deal with its myriad of problems independently of a valuable asset.
Yahoo’s Monday filing noted that the company will seek a favorable ruling from its legal team at Skadden, Arps, Slate, and Meagher & Flom LLP. Marissa Mayer said the company aims to complete the spinoff by the end of the fourth quarter. The company, however, is at risk of tax audit objections from IRS, even though the act will consume ample amount of time. Why accept this degree of risk when Yahoo could continue to hold off on this transaction until after it ensures that it will be tax free? With its core business continuing to struggle, the sale could allow Yahoo to look into further acquisitions aimed at growth, in addition to returning a large chunk of the money to shareholders.
The value of the Alibaba stake is now worth significantly less than when Mayer initially unveiled her spinoff plans.