Why Is Yahoo Ditching Its Alibaba Stake?

Microsoft. Marissa Mayer, Yahoo

Marissa Mayer looks to spin off Yahoo holdings in Chinese e-commerce site into new company

Yahoo has announced it is looking to spin off its stake in Chinese e-commerce giant Alibaba as part of a move to maximise the profitability of its holdings and avoid a potentially large tax bill.

The online giant, which currently owns 15 percent of Alibaba group, will create a newly registered company called SpinCo made up of its stake, which is worth around $40bn (£26bn).

Yahoo shareholders will receive all of SpinCo’s 384m Alibaba shares.

“Yahoo believes this transaction will achieve the most advantageous return of capital to our shareholders with the absolute highest probability of success”, said Yahoo, whose shares rose 6 percent following the news.

alibaba logo ©shutterstock Gil CGrowing

The company announced the news as part of its fourth quarter financial results, which came in below analysts’ expectations with revenues of £780m, just under half of what Yahoo reported the same time last year.

Display advertising revenue dropped four percent to £350m, however mobile revenue climbed 23 percent to £167m.

“I’m pleased to report that our performance in Q4 and in 2014 continues to show stability in our core business,” Yahoo’s chief executive Marissa Mayer said in a statement. “Our mobile strategy and focus has transformed Yahoo and yielded significant results.”

Yahoo originally acquired a 40 percent stake in Alibaba in May 2012 in return for $1 billion (£616m) in cash and the sale of its Yahoo China business. However, the Chinese company bought back half the stake in September 2012 as part of its move towards an IPO, which finally completed late last year in a world record offering.

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