Activist investment firm Starboard Value has asked online media company Yahoo to halt the plan to offload its stake in Alibaba. Starboard suggested that the Marissa Mayer-led company should sell its core business instead of spinning off the Alibaba stake. Starboard, which counts Yahoo among its largest positions, had previously supported the planned spinoff.
Will Yahoo listen to Starboard?
In a letter sent to Yahoo on Wednesday, the investment firm said the risk of tax from the proposed spinoff is too high. Yahoo’s stake in Alibaba is currently worth more than $20 billion. The letter that was reviewed by the Wall Street Journal says shareholders might be hit by about $9 billion tax bill if the IRS denies the tax-free status at a later stage.
In September, Yahoo had sought clarification from the Internal Revenue Service (IRS) on whether the spinoff would be tax-free. But the federal government declined to rule. Yahoo CEO Marissa Mayer said the company would press ahead with the spinoff plan despite the lack of IRS approval. The US company believed that the IRS would eventually rule in its favor.
Potential risk with Alibaba spinoff is ‘just too great’
Experts fear that the IRS could challenge the Alibaba spinoff in a future audit. Last month, the Sunnyvale-based company said it expected the spinoff to be completed by January 2016. Starboard Value still believes that the spinoff is unlikely to incur taxes, but it says, “the potential penalty for being wrong is just too great.” In its letter, Starboard asked Yahoo to sell its core business, and keep its stake in Alibaba and Yahoo! Japan.
Previously, the activist investor had suggested that Yahoo’s core Web properties could be merged with AOL. But Verizon snapped up AOL for $4.4 billion in May this year. Investors have stepped up pressure on Marissa Mayer, whose turnaround plan has failed to revive the company’s core businesses. Yahoo has acquired Tumblr, and sought to challenge Netflix in video streaming. But these efforts have yielded little in terms of revenue.