Yahoo Inc said on Wednesday it had shelved plans to spin off its stake in Chinese e-commerce giant Alibaba Group Holding Ltd, citing tax concerns, and will instead create a separate company to hold the rest of its assets.
The new publicly traded company will house Yahoo's Internet business and its 35 percent stake in Yahoo Japan, giving investors a clearer view of the company's core business.
However, the plan - which may take a year or more to conclude - adds another layer of uncertainty to Chief Executive Marissa Mayer's efforts to revive the struggling company.
Yahoo had intended to spin off its Alibaba stake, worth more than $30 billion, by January. But investors, lacking assurance from the U.S. Internal Revenue Service, were worried that a spinoff could cost shareholders billions in taxes.
Yahoo, which has a market capitalization of about $35 billion, owes almost all of its valuation to its 15 percent stake in Alibaba and its holding in Yahoo Japan.
Yahoo executives said on a conference call they still believed the original spinoff would have been tax-free but the specter of a big tax bill had unnerved investors, depressing the company's stock price.
The new transaction should eliminate a valuation discount of over $11 billion on Yahoo's Alibaba stake that is part of the company's share price, said Murali Sankar, an analyst at brokerage Boenning & Scattergood Inc.
However, shares of Yahoo, which will remain publicly traded, were down 0.6 percent at $34.62 in morning trading as investors digested the complexity of the so-called "reverse spinoff."
The new plan will require Yahoo to win the consent of a large cast of players including regulators, shareholders, bondholders, business partners and others "too many to name," Chief Financial Officer Ken Goldman said on the call.
The plan to spin off Alibaba stake would have been far simpler, he added.
Yahoo has struggled to grow its Internet business, which includes selling search and display ads on its news and sports sites and email service, in the face of competition from Alphabet Inc's Google and Facebook Inc.
But Yahoo.com still ranks fifth in terms of daily visits, according to monitoring firm Alexa, and this could make it an attractive target for a telecom carrier or private equity.
"A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo's business," Mayer said in a statement.
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