Yahoo Spins Off $40B Alibaba Stake Into Unit Called SpinCo

The spin-off strategy could save $16 billion in taxes on the $40 billion stake.

Yahoo had one other major assignment in its Jan. 27 fourth-quarter earnings report, besides revealing its actual earnings. Investors clearly wanted to see the company's plan for a tax-free spin-off of its shares in Alibaba.

They got it, and voila: Yahoo climbed more than 7 percent to $51.49 in after-hours trading.

Yahoo, which once owned nearly 30 percent of the China-based e-commerce site that went public last year, said it would transfer its remaining 15 percent stake—384 million shares worth about $40 billion, plus what it called "legacy, ancillary businesses"—into a new unit dubbed SpinCo. Shares of the new unit will be distributed to current Yahoo shareholders.

Yahoo made a pretty good move back in 2005 when it bought the original Alibaba shares for about $1 billion.

"We believe it maximizes value for our shareholders and optimizes transaction efficiency and certainty," CEO Marissa Mayer said on the conference call to analysts. "This is a structure that we can pursue and affect independently, capturing value exclusively for our shareholders."

The spin-off could save $16 billion in taxes on the $40 billion stake, Yahoo said.

In the quarterly earnings report, company revenue totaled $1.18 billion, missing Wall Street projections of $1.19 billion.

In the fourth quarter, Yahoo's overall revenue minus traffic costs was down 2 percent from the prior year. Mobile revenue totaled $254 million, up from $207 million the previous quarter. For the year, mobile revenue hit $768 million.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...