Yahoo to Move Forward with Alibaba Spin Off Despite IRS Risks

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Yahoo Marissa Mayer

Yahoo (NASDAQ:YHOO) announced Monday that it will move forward with the spinoff of its Alibaba (NYSE:BABA) stake – even if that means the transaction will be taxed. The IRS declined to make a decision on whether themove would be tax-free despite Yahoo’s request for a private letter ruling.

Yahoo’s shares were up 4% in extended trading to $28.71.

In a regulatory filing, Yahoo stated that the spinoff of their stake in the Chinese e-commerce company will be subject to certain conditions. These conditions include a legal opinion on whether the transaction should be treated as tax-free under U.S. federal laws.

Currently, Yahoo holds 384 million shares of Alibaba, which closed at $59.24 on Monday. Based on these figures, Yahoo’s stake in the company is worth an estimated $22.75 billion.The value of Yahoo’s stake is just slightly lower than their market capitalization of $25.98 billion.

In 2005, Yahoo paid $1 billion for its 40% stake in Alibaba.

According to analysts, Yahoo’s core business would be worth virtually nothing without its Asian assets. Yahoo’s shares are down 45% this year, and Alibaba’s shares are down almost 45% as well.

Shareholders and analysts expect that Alibaba and Yahoo will be worth more separately.

Yahoo expects the deal to close in the fourth quarter.

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