Yahoo has decided to scrap plans to spin off its remaining $32 billion stake in Chinese e-commerce company Alibaba Group. The spinoff had been set up as a tax-free shelter for Yahoo’s 384 million shares in Alibaba. That idea pleased investors until the Internal Revenue Service declined to rule that the Alibaba spinoff would qualify for a tax exemption.
Yahoo is now pursuing a different course that could make it easier to eventually sell its Internet operations, the business that now generates virtually all of Yahoo’s revenue.
Here are some key developments involving Yahoo and its ownership of Alibaba:
About a decade ago, Yahoo Inc. invested just $1 billion in Alibaba, a bargain that slapped the company with massive tax bills as it whittled its stake during the past three years.
These days, Alibaba has a market valuation of more than $200 billion.
May 20, 2012: Yahoo agrees to sell half of its prized stake in Alibaba for about $7.1 billion. The deal calls for Alibaba to buy back half of Yahoo’s then-40 per cent stake for $6.3 billion cash and up to $800 million of Alibaba preferred shares. After paying taxes, Yahoo expects to get about $4.2 billion.
July 16: Yahoo names longtime Google executive Marissa Mayer as CEO.
Aug. 9: Yahoo says Mayer may revise plans to pay shareholders billions of dollars from the sale and instead keep the windfall for other spending. Mayer is mulling a shift in direction as part of a sweeping review of the company.
Sept. 18: Yahoo says it has completed the Alibaba deal and will distribute most of the proceeds to its shareholders after all. After the distribution, Yahoo will still have an extra $1.3 billion to finance acquisitions or hire new talent.
Jan. 27, 2015: Yahoo says it will spin off its remaining stake in Alibaba in a move that wards off a potential shareholder rebellion. The spinoff is designed to let Yahoo avoid paying billions of dollars in future taxes. A newly formed entity would inherit ownership of Yahoo’s 384 million Alibaba shares, then worth about $39 billion.
March 26: Yahoo says it will buy back $2 billion in company stock as it prepares for the spinoff.
July 17: Yahoo announces a name for the Alibaba spinoff, Aabaco Holdings Inc. Yahoo stockholders would get shares of Aabaco.
Sept 8: The spinoff plan has hit a snag after the IRS refuses to bless Yahoo’s proposal as a tax-free transaction. Despite the rebuff, Yahoo emphasizes that the IRS didn’t rule out the possibility that the spinoff could still be completed without triggering taxes on the profits that the company has accumulated from its initial $1 billion investment in Alibaba.
Nov. 19: Activist investor Starboard Value urges Yahoo to scrap the planned Alibaba spinoff and sell its own Internet business instead.
Dec. 9: Yahoo scraps the spinoff plans. The course Yahoo now plans to pursue would end up transferring the Internet operations into newly formed company. Shares in the new company would then be distributed to Yahoo shareholders, a process that could take a year to complete.