Yahoo scraps Alibaba spinoff amid investor pressure

10 Dec 2015 | Author: | No comments yet »

Cramer: Yahoo blew it, Dow & DuPont won.

In January, when Yahoo Inc. announced plans to spin off its $31-billion stake in Chinese e-commerce giant Alibaba, there was talk of how it would liberate Yahoo to focus on its core business of Internet search and content ranging from news to stock market investor tools to online TV shows.There were two large business events that defined a new cycle in the market on Wednesday, and Jim Cramer said it all comes down to squandered opportunities versus created opportunities. “I’m talking about Yahoo’s decision to stand pat and not try to bring out any value, and Dow and DuPont’s decision to give up their storied legacies and become one company in order to create value,” the “Mad Money” host said.NEW YORK–Large shareholders are doubting Yahoo’s commitment to selling its core Web assets, raising the specter of a contest for board seats if investors’ fears are confirmed.

The Sunnyvale, Calif., company announced Wednesday that it would halt the planned spinoff of its valuable stake in Alibaba, and instead spin off the rest of its assets — including and its stake in Yahoo Japan — into a separate company. One large shareholder, who asked not to be identified due to firm policy, attributed the stock decline to the board’s failure to commit to a sale of core assets, even if it means taking a tax hit — as well as a lack of confidence in Mayer’s ability to turn the business around. If Yahoo can’t drum up support for its latest plan, the board — already under fire for a falling stock and shrinking market share — could be at risk for a proxy contest, experts said. A Web pioneer, with a search engine that preceded Google’s, Yahoo has been in trouble for years under a succession of CEOs who tried to make sense of what has become a strategic hodgepodge. Webb told CNBC that the board would “engage with any legitimate person that comes forward with a good offer.” But, he added: “We are not proactively trying to do any of that.

We remain focused on our operating business being turned around and separating out the Alibaba assets,” through a reverse spin-off that would leave Alibaba assets where they are and spin off everything else, forming two publicly traded companies. Citigroup analyst Mark May downgraded Yahoo’s stock Wednesday on the complexity and timeline of the plan. “Given the lack of a near-term catalyst and the risk to the execution of such a deal, we downgrade [the] shares,” May said in his research report. The company originally believed that its Alibaba spinoff plan would be tax free, but after the IRS declined to confirm that this would be the case, the transaction was cast in doubt. “I’m not sure anyone wants to see a situation where Yahoo pursues this and in 2018, the IRS writes to the company indicating Yahoo owes taxes on that transaction,” said Scott Kessler, deputy director of global equity research at S&P Capital IQ.

Investors will be looking for a sign from management at its fourth-quarter earnings announcement in January, said Stephen Diamond, a professor at Santa Clara University’s School of Law. “There remains lingering doubt about the board’s inability to execute what they say they are going to do,” Diamond said. But Cramer was not enthused with the disposition of Mayer and Yahoo Chairman Maynard Webb when they appeared on CNBC’s “Squawk on the Street” on Wednesday. “I, a big backer of Yahoo and still a user, was taken aback by how little enthusiasm either exec seemed to have about what the company is up to,” Cramer said. This person also expects some bidders will wait until after Yahoo releases its fourth quarter earnings to make a bid because it will be cheaper to buy if Yahoo misses earnings projections.

Verizon CEO Lowell McAdams, which bought Yahoo competitor AOL earlier this year, said at a Business Insider conference that the telecom giant would look at Yahoo if it were up for sale. “So what if you have the spin-off and have a decision [about a sale] in a year?” said Josh Strauss of Appleseed Fund, which is invested in Yahoo. “It’s not the end the world,” he said. Does it find a buyer or another firm with which it can merge? “You can play very interesting parlor games and think who they might hitch up with,” Angel said. “Microsoft is an obvious candidate, so is Google and so is AOL for that matter, and you could spin a story about how any of them might want all or part of Yahoo. Wednesday’s reverse spinoff announcement isn’t going to solve Yahoo’s ongoing problems, Frank said. “In fact, it looks like the biggest beneficiaries will be the tax lawyers.”

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