A 15% stake in Alibaba is the most prized asset of Yahoo. The U.S. Internet company will be just a fraction of its current size if Yahoo CEO Marissa Mayer decides to spin off the Alibaba stake. She is poised to make a fateful decision about whether the company will sell its Alibaba stake and how it would avoid paying taxes on the stake sale. She has promised to update investors on her plans next week when the company releases its fourth quarter results.

Yahoo Without Alibaba Group Holding Ltd Stake May Lure Buyers

Why SoftBank may be interested in Yahoo

One option is to spin off its Alibaba stake valued at close to $40 billion in a separate entity, with the value going to Yahoo shareholders. It could make Yahoo a takeover candidate for SoftBank or private equity firms, reports Bloomberg. After the stake sale, Yahoo will be valued at less than $8 billion, according to Gabelli & Co. analyst Brett Harriss. Notably, Yahoo will still have approximately $8 billion stake in Yahoo Japan.

SoftBank could acquire Yahoo to boost its Yahoo Japan stake. The U.S. Internet company’s operations continue to generate cash, which could lure private equity firms. Alibaba can also possibly take over Yahoo to gain exposure to the U.S. technology market. CRT Capital analyst Neil Doshi told Bloomberg that if Yahoo casts off the Alibaba stake, it would become a “much more compelling target.”

Investors favor a tax-free spin-off of Alibaba stake

Yahoo holds 384 million shares of Alibaba, which it can sell only after September 2015. Its stake in Yahoo Japan is valued at $8 billion. That means investors buying Yahoo stock get to own its core U.S. business for free, plus the company still has $7 billion in cash. Many shareholders have favored a tax-free spin-off of Alibaba stake into a separate company. Another tax-free alternative is a cash-rich split. It would involve Alibaba or its affiliates giving Yahoo an active business and cash in exchange for its Alibaba shares.

Chinese Internet giant Tencent Holdings is also a potential suitor for Yahoo as it is looking to expand in the U.S., notes CRT Capital. Yahoo’s mobile ad revenue is growing rapidly. So, Microsoft, which has fallen behind in mobile Internet, may be interested in Yahoo to fill a gaping hole.