Yahoo Inc. announced on Wednesday, Dec. 9, that it is cancelling the plan to spin off its stake in Alibaba Group Holding Ltd., stifling Chief Executive Marissa Mayer’s turnaround effort and prolonging the uncertainty of a 20-year-old Internet company fighting for survival, the Wall Street Journal reported.
According to the report, the decision was made after several days of meetings by Yahoo's board, which chose to focus on a new plan to spin off Yahoo's core business and its stake in Yahoo Japan into a separate, publicly traded company.
The report said that billions of dollars in taxes could be saved in the "reverse spin" of the core business, but it would take more than a year to execute, which could expose it to an activist investor challenge via a proxy battle or potential buyer.
"A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo's business," Mayer said Wednesday.
Last month, activist investor Starboard Value LP urged the company to halt its Alibaba spinoff and find a buyer for its Internet business.
According to comScore, Yahoo's core business is shrinking, but it's still one of the most visited services on the Web. In the U.S., Yahoo Mail and Yahoo News are the third-most visited Internet sites with 210 million visitors in October. Yahoo trails Google Inc. and Facebook Inc.
Yahoo Chairman Maynard Webb said on Wednesday that the company's previous plan to spin off the Alibaba stake would have been tax-free, but "we were concerned about the market's perception of tax risk, which would have impaired the value" of the spinoff's stock.
Yahoo disclosed in September that the Internal Revenue Service denied its request for a favorable ruling of the Alibaba plan, but said it would move forward with the proposed spinoff anyway, taking the risk that the IRS could challenge it in a future audit and putting shareholders liable for billions of dollars in taxes.
Meanwhile, Yahoo also denied that Max Levchin, a serial tech entrepreneur who co-founded PayPal Inc., is leaving the company as previously reported, according to the company's filing with the Securities and Exchange Commission.
Levchin was Mayer's first addition to the board in Dec. 2012 and worked with her briefly at Google after the search giant acquired his startup Slide Inc. in 2010.
According to the report, investors are concerned about Mayer's lack of progress in turning around Yahoo. The company's sales have shrunk from $4.5 billion in 2012 to $4.4 billion last year and even less is expected for 2015. In addition, Yahoo has not gained foothold in the digital ad market, which is dominated by Google and Facebook.
The exodus of top executives also added pressure on the company's board about Mayer's future and alternatives to the turnaround effort, now in its fourth year.
The report said that strategic buyers who are likely to consider a deal include Verizon Communications Inc., Barry Diller's IAC/InterActive Corp., News Corp. (owner of The Wall Street Journal) and private equity firm TPG Capital.