Yahoo Plans To Spin Off Its Alibaba Stake, Tax Free, Into A New Company

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In addition to releasing its (mixed) fourth-quarter earnings report, Yahoo just announced its plan to spin off its stake in Alibaba into a new company, currently dubbed “SpinCo.”

The new company will own all of Yahoo’s 384 million remaining shares in Alibaba, valued at $40 billion. The spin off will be tax-free, which had been predicted and was one of the main concerns of shareholders — and as of 4:32 p.m. Eastern, Yahoo shares were up more than 7 percent in after-hours trading.

“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,” Yahoo CEO Marissa Mayer said in the spin-off release. “A tax-free spin-off accomplishes this and delivers value directly and exclusively to our shareholders.”

In an earnings call last year, Mayer (who’s been facing increasing pressure from activist investors on this and a number of other issues) said the company was working with “the best tax experts in the country working on structures to maximize the the value [of the Alibaba stake] to our shareholders.”

Yahoo says the spin-off should be completed in the fourth quarter of this year (after the post-Alibaba IPO lock up on Yahoo shares expires). SpinCo will be a publicly traded company, with stock distributed pro rata to Yahoo shareholders, and will also include “a legacy, ancillary Yahoo business.”

Yahoo bought its stake in Alibaba back in 2005, with Alibaba running a number of Yahoo-branded properties in China. The strategy wound down in recent years, with with Yahoo China shutting down in September 2013.