Yahoo’s Board of Directors has authorized a plan for a tax-free spinoff of the company’s Alibaba Group holdings, a recommendation of the media giant’s management.
The move would form a new publicly traded, independent registered investment company — aptly titled SpinCo — whose shares will be distributed pro rata to Yahoo stockholders. Following the spinoff, Yahoo will continue to hold its 35.5 percent interest in Yahoo Japan, the company said on Tuesday. SpinCo will own Yahoo’s remaining 384 million shares of Alibaba, which are valued at $40 billion per Jan. 26’s closing price.
Further, SpinCo will assume no debt in the transaction, and Yahoo will retain its cash, the company specified.
The composition of SpinCo’s own (independent) Board of Directors and management team — as well as other details of the transaction, including the distribution ratio — will be announced prior to the closing of the transaction, Yahoo explained.
The completion of the transaction is expected to occur in the fourth quarter of 2015, timed with the expiration of Yahoo’s one-year lock-up agreement in connection with Alibaba’s record-breaking IPO.
The transaction is subject to final approval by Yahoo’s Board, a ruling from the Internal Revenue Service and other customary compliance measures. BofA Merrill Lynch, Goldman Sachs & Co. and J.P. Morgan Securities LLC, are financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel to Yahoo.
“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. A tax-free spin off accomplishes this and delivers value directly and exclusively to our shareholders,” said Yahoo CEO Marissa Mayer.
“Through share repurchases to date, we have returned approximately $9.7 billion of proceeds from Alibaba,” she continued. “Post-spin, using the closing price for Alibaba as of Jan. 26, we will have returned nearly $50 billion dollars of value to our shareholders. This level of capital return is historic, especially for a company of our size.”
Mayer concluded: “The plan announced today vividly demonstrates our commitment to being good stewards of capital and increasing shareholder value.”
Yahoo announced its quarterly earnings on Tuesday evening; Mayer and CFO Ken Goldman continued to tout the spinoff on the subsequent conference call.