Yahoo to spin off Alibaba stake, reports flat Q4 results
Sunnyvale, Calif. – Yahoo Inc. plans a tax-free spin-off of its remaining holdings in Alibaba Group. The spinoff will create an independent registered investment company called SpinCo.
Stock of the new company will be distributed pro rata to Yahoo shareholders, resulting in SpinCo becoming a separate publicly traded company. Following the spin-off, Yahoo will continue to operate its core business and hold its 35.5% interest in Yahoo Japan.
SpinCo will own all of Yahoo’s remaining 384 million shares of Alibaba, valued at $40 billion based on the closing price on Jan. 26, 2015, as well as a legacy, ancillary Yahoo business. SpinCo will assume no debt in the transaction, and Yahoo will retain its cash. So far, Yahoo estimates it has returned $9.7 billion of Alibaba proceeds, and will have returned $50 billion after the spin-off.
“Today, along with our board of directors, I am proud and happy to announce a plan for a tax-free spin-off of our Alibaba holdings,” said Marissa Mayer, CEO of Yahoo. “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. A tax-free spinoff accomplishes this and delivers value directly and exclusively to our shareholders. This level of capital return is historic, especially for a company of our size. The plan announced today vividly demonstrates our commitment to being good stewards of capital and increasing shareholder value.”
The composition of SpinCo’s independent board of directors and management team, and other details of the transaction, will be announced prior to the closing of the transaction, expected in the fourth quarter of 2015. The transaction is subject to certain conditions, including final approval by Yahoo's board of directors, receipt of a favorable ruling from the IRS, registration with the SEC and other conditions.
Activist investors, including the Starboard Value LP hedge fund, had been pressuring Yahoo to spin off its Alibaba stake. Starboard has also been publicly suggesting that Yahoo merge its Internet business with struggling AOL. Other major technology and retail companies, including HP and EBay, have announced spinoffs in recent months.
Yahoo announced the planned Alibaba spinoff as part of its fourth quarter fiscal 2014 earnings release. During the quarter, Yahoo reported earnings per share (EPS) of $0.46 and revenue of $1.18 billion. These results were essentially flat with EPS of $0.46 and revenue of $1.2 billion in the same period a year earlier. Yahoo beat consensus EPS estimates and met revenue estimates.
For the full fiscal year, Yahoo posted EPS of $1.57 and revenues of $4.4 billion. In fiscal 2013, Yahoo reported EPS of $1.52 and revenues of $4.43 billion. Yahoo fell short of consensus EPS estimates but beat consensus revenue estimates. Fourth quarter mobile revenue rose 23% to $254 million and mobile, video, native, and social businesses delivered more than $1.1 billion in revenue for the full fiscal year, up 95% year-over-year. These growth drivers have really focused our investments and energy on the future of digital advertising.