Technology
Yahoo Inc plans to spin off its 15 percent stake in China's Alibaba Group Holding Ltd, responding to pressure to hand over to shareholders its prized e-commerce investment valued at roughly $40 billion.
Reuters reports that shares of Yahoo rose about 7 percent to $51.45 in after-hours trading on Tuesday, following the tax-free spinoff announcement and earnings which just beat analysts forecasts even as its revenues slightly lagged estimates.
The move to spin off the Alibaba stake satisfies a persistent investor demand, but could also ratchet up pressure on Yahoo Chief Executive Marissa Mayer to make quicker progress in strengthening Yahoo's struggling media and advertising business.
"It's not going to be easy from now on," said B. Riley and Co analyst Sameet Sinha. "She has to perform now. There's nothing shielding her."
Shareholders feel that Yahoo and its stake in Alibaba would be worth more separately, as long as the Alibaba shares are not subject to the standard 35 percent tax rate that would be incurred from selling the shares. Yahoo was worth about $45 billion at Tuesday's market close.
That includes its Alibaba stake of nearly $40 billion, meaning the current Yahoo share price assigns little value to the core business. Some investors believe the email, website and other operations are worth between $7 billion and $8 billion.
Yahoo, which is trying to reverse a multi-year decline in revenue, has faced increasing investor pressure more than two years after Mayer took the reins to lead a comeback plan.
Some analysts say they believe C.E.O. Marissa Mayer likely extended her life as Yahoo's CEO by spinning off the company's stake in Alibaba. The next challenge will be acting fast enough to fix the company's core business.
Large Yahoo shareholders interviewed by CNBC on Tuesday said the move is the best possible outcome for the Alibaba stake. It's also likely sufficient to protect Mayer and the current Yahoo board from opposition during the upcoming proxy season. Shareholders are allowed to nominated new directors before a deadline of March 27.
