Investors cheered today as
The tax-free spinoff, which helped drive shares up more than 7% in early after-hours trading following a nearly 3% drop today, may help appease investors who wanted Yahoo to split into two companies. (Update: Shares rose only 2% in regular trading on Jan. 28.) But it wasn't quite what activist investor Starboard Value has called for, which is a spinoff that also includes Yahoo's investment in
Still, the move at least starts to provide embattled CEO Marissa Mayer a way to make it clear what Yahoo's core business is worth. Combined with Yahoo's 15.4% Alibaba stake, it has been valued at almost nothing because of the moribund state of the core advertising business.
Yahoo also reported fourth-quarter earnings of 30 cents per share on revenues of $1.18 billion. Analysts had forecast a 29-cent profit on $1.19 billion in revenue. Mobile revenues shot up 23% to $254 million, reaching $1.26 billion in gross revenues for the year before payments to partners. But overall revenues remained stubbornly flat despite 100% growth in what Mayer called Yahoo's MaVeNS business (Mobile, Video, Native and Social ad revenues; search is notably not part of the acronym). Forbes' Miguel Helft blogged more details of the call.
The new investment company, for now unimaginatively labeled SpinCo, will be traded publicly, separate from Yahoo. Shares of the new company will be distributed to Yahoo shareholders. "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," Mayer said in a statement. "A tax-free spin off accomplishes this and delivers value directly and exclusively to our shareholders."
Yahoo said the makeup of SpinCo's board and management as well as other details such as the distribution ratio will be announced before the deal closes. By one credible account on Bloomberg, it's a legal tax dodge, pure and simple--one that positions SpinCo to be bought out by Alibaba itself at some point.
In the earnings call, Mayer said the company is on track to return almost 97% of its Alibaba proceeds to shareholders. She also made the point that by not selling Alibaba shares earlier, Yahoo had boosted the value of the shares by several billion dollars.
Mayer also said Yahoo is looking to maximize the much smaller 35.5% stake in Yahoo Japan, which is worth about $7 billion. Yahoo Japan is a joint venture with Softbank. Neither Mayer nor Chief Financial Officer Ken Goldman offered specifics, but in the analyst call, Goldman implied that Yahoo Japan could be spun out as well but faced complications of partnerships and foreign status that made it difficult to include in SpinCo in the near term.
Chief Financial Officer Ken Goldman said the SpinCo transaction is unique, since he can't recall another company that spun off an investment company. It's not yet clear what SpinCo will do with the Alibaba or other investments.
What's more clear now is that Yahoo will have to stand on the strength, or weakness, of its core advertising business without the crutch of the Alibaba stake.
Another thing to consider: The much smaller valuation Yahoo will now carry means it could be easier to acquire.
