In a press release today (12/9/2015), Yahoo announced it is dropping its previous plans to spin off Yahoo Small Business, along with its $30+ billion stake in Alibaba, into a new company called Aabaco. Since that announcement, there has been a growing concern among investors that the tax advantages the company anticipated with the deal could be successfully challenged by the IRS. The plan announced today, called a “reverse spin off,” will be a less risky (from a tax standpoint) approach to splitting a large corporation into two entities, but will still take up to a year of planning and regulatory review to pull off. More importantly, it will result in the company now called Yahoo, exiting the internet business completely.
Background: In January, Yahoo announced it was spinning off its small business unit as part of a transaction to hand over to shareholders, in a tax-free manner, its 15 percent stake in China’s Alibaba, which was worth around $40 billion at the time of the announcement (now closer to $30 billion). Yahoo Small Business sells e-commerce tools, domain names, web hosting and local listing services to more than 1.5 million paying customers. A version of the service has been around since 1998, when Yahoo purchased Viaweb, a startup company by YCombinator founder Paul Graham. Even though the plan was not approved, Yahoo changed the name of Yahoo Small Business to Aabaco Small Business, and has spent much of 2015 rebranding the products and services it provides to small businesses.
According to NYTimes.com, after the reverse spin off, Yahoo will consist of one thing: its ownership of $30+ billion stake in Alibaba. The new company will consist of an $8 billion stake in Yahoo Japan and all of its current internet products and services, including Yahoo Small Business.
After the reverse spin-off
| Yahoo |
- Alibaba stake: $31 Billion (currently)
| New Company |
- Yahoo Japan stake: $8 Billion (currently)
- Yahoo’s current internet assets: $3–$8 Billion (estimates by analysts)