A three-day board meeting will tackle Yahoo's future outlook, this includes the possible trade of its web business. Moreover, the company's 15 percent stake in Alibaba, an e-commerce firm based in China, will also be decided by Yahoo's board of directors. Analysts predict Yahoo will face a serious business risk in its spin-off plan with the Alibaba stake.
In 2005, Yahoo purchased a 40 percent stake in Alibaba for $1 billion, which includes control over Yahoo China. Seven years later, Alibaba gave Yahoo $7.6 billion in stock and cash to buy back 20 percent of the shares they bought.
Standard & Poor's equity analyst Scott Kessler said that Yahoo had spent most part of the past 10 years analyzing how it can squeeze out their full market value out of its stake in Alibaba. However, if Yahoo sells $30 billion in Alibaba stock, it will lead to a capital gains tax bill worth approximately $10 billion from the Internal Revenue Service.
Yahoo announced their Alibaba stake spin-off in January. The company advertised their move to be a best solution to bring its 15 percent stake to full market value, notably; the move will also be tax-free.
Yahoo's plan is to develop its $30 billion Alibaba stake into Aabaco, which will retain Alibaba's ownership. As a public company, Aabaco will then raise billions based on the stake. According to Kessler, investor will capitalize on Alibaba's value hoping that it would escalate.
"The problem is there is no certainty here. The IRS could, in a couple of years, deem the transaction taxable and want $10 billion in taxes," said Kessler.
The nine-member board of directors who will discuss Yahoo's future will include Yahoo CEO Marissa Mayer. External factors are expected to influence the company's decision. Starboard Value's Jeffrey Smith had been pushing Yahoo to seriously consider the trade of its core business, which include news, email and online search engine.
Strong suitors such as InterActive Corp. and Verizon had been identified. With the right buyer, Yahoo's core business could rake in $8 billion however; analysts predict that it would create the same dilemma as the Alibaba spin-off. Without its core Web assets, regardless of low performance, Yahoo will become a company without a core operation. However, it would remove the enormous tax liability.
