Yahoo’s decision to spinoff its Alibaba stake came after Starboard threatened to push for leadership change in the company

Yahoo! Inc. To Spin Off Its Stake In Alibaba Group Holding Ltd

The board of directors of Yahoo announced its decision regarding the tax-free spinoff  of its remaining stake in Alibaba Group into an independent registered investment company (SpinCo).

The stock price of the Yahoo climbed almost 8% to $51.82 per share during the extended hours trading, around 4:56 in the afternoon in New York.

Details of the spinoff

According to Yahoo, the shares of the SpinCo will be distributed pro rate to its shareholders. According to the search company, SpinCo will become a separate publicly traded company.

The search company will continue operating its core business, and owns 35.5% stake in Yahoo Japan after the spinoff.  Yahoo will retain its cash and SpinCo will not assume any debt in the transaction.

SpinCo will own the remaining 384 million shares of Alibaba Group Holding including the ancillary businesses of Yahoo. The stake has a market value of approximately $40 billion based on the closing price of Alibaba shares in January 26.

Mayer says tax-free spinoff maximizes value for Yahoo shareholders

In a statement, Yahoo CEO Marissa Mayer said, “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.”

Mayer added that Yahoo returned approximately $9.7 billion of proceeds from Alibaba through shares buyback. According to her, the total amount of capital would have been returned to shareholders post-spin off is almost $50 billion based on the closing price of Alibaba shares on January 26.

“The plan announced today vividly demonstrates our commitment to being good stewards of capital and increasing shareholder value,” said Mayer.

On the other hand, Yahoo CFO Ken Goldman emphasized that the leadership of Yahoo considered different options and actively engaged experts regarding tax efficient structures over the past two years.

“We remain aligned with our shareholders and our plan is designed to achieve the most advantageous return of capital to Yahoo shareholders with the absolute highest probability of success,” said Goldman.

Starboard threatened to push leadership change at Yahoo

Starboard Value sent a letter to Mayer and suggested that Yahoo should take advantage of its remaining stake in Alibaba Group Holding and Yahoo Japan.

The activist hedge fund urged the company to reduce costs, improve the profitability of its core business, and consider a merger with AOL. Starboard Value also threatened that a “significant leadership change” could be necessary if the Yahoo does not act on its recommendations.