On Wednesday, Yahoo made the shocking announcement that it will not sell its $31 billion stake in Chinese e-commerce company Alibaba. Rather than drop its critical holding in the Chinese giant, Yahoo will convert virtually all of its other assets into an entirely new company in a corporate spin-off.
The decision to not sell its shares of Alibaba was surprising to many, as some believed that it was the only way for Yahoo to climb out of its massive hole. Yahoo reportedly decided to not sell its holdings of Alibaba because of the tax risks involved.
Yahoo board chairman Maynard Webb said in a statement, “The board remains committed to accomplishing the significant business purposes and shareholder benefits that can be realized by separating the Alibaba stake from the rest of Yahoo. To achieve this, we will now focus our efforts on the reverse spinoff plan.”
Shareholders of Yahoo will receive stock in both Yahoo and the spin-off company. According to Yahoo officials, it might take more than a year for this plan to conclude. Some analysts have noted that Yahoo shares will retain a higher value by not selling Alibaba.
By retaining the Chinese e-commerce behemoth, Yahoo shares are expected to trade around $40. If Yahoo had cut ties with Alibaba, they would have traded at around $32. Although selling Alibaba would have been a quick source of capital for Yahoo, the company ultimately decided that keeping a high share price was more important.
Additionally, Yahoo announced that one of its key board members, Max Levchin, had resigned from his position in order to focus on serving as the CEO for online lending company Affirm. Yahoo has no plans to replace Levchin, and the board of directors will shrink to eight members.
Originally, Yahoo had been planning to spin-off its 15% stake in Alibaba, along with a small business services unit, into a new company called Aabaco. From there, Yahoo would have focused on improving the company’s core business, which is the sale of advertising. Yahoo has largely failed to compete with big name players like Google in this field.
Still, Yahoo is in serious trouble. The company’s $31 billion holding of Alibaba is its most valuable asset, while its Yahoo Japan unit is a distant second at $8.5 billion. The rest of Yahoo is only worth somewhere between $8 billion and $3 billion.