Internet giant Yahoo Inc. plans to spin off the company's remaining holdings in Alibaba Group Holding Ltd into a new independent investment company (SpinCo), the company announced on Tuesday.
As per the plan, the stock of the new company will be distributed pro rata to Yahoo shareholders, resulting in SpinCo becoming a separate publicly traded company. Yahoo will continue to operate its core business and hold its 35.5 per cent interest in Yahoo Japan.
SpinCo will own all of Yahoo's remaining 384 million shares of Alibaba, valued at around $40 billion, based on the closing price on January 26, 2015, as well as a legacy, ancillary Yahoo business. The company did not specify which businesses come under the 'legacy, ancillary business'.
"We have worked on a tax-efficient alternative that would maximise the value of our Alibaba investment for our shareholders. A tax free spin-off accomplishes this and delivers value directly to our shareholders," said Marissa Mayer, CEO of Yahoo.
"Through share repurchases to date, we have returned approximately $9.7 billion of proceeds from Alibaba. Post spin-off, using the closing price for Alibaba as of January 26, we will have returned nearly $50 billion dollars of value to our shareholders," she added.
The completion of the transaction is expected to happen in the fourth quarter of 2015 after the expiration of a one-year lock-up agreement on the Alibaba shares entered into in connection with the IPO.
Yahoo and its advisers have spent well over a year coming up with a viable option to sell off its stake in NYSE-listed Alibaba and avoid or minimise a potential $15 billion tax bill.
Based on Alibaba's share price at the end of January 27, the stake was worth around $39.5 billion. NASDAQ-listed Yahoo itself has a market cap of around $45.4 billion.
BofA Merrill Lynch, Goldman, Sachs & Co, and J.P. Morgan Securities LLC are serving as financial advisors to Yahoo.
(Edited by Joby Puthuparampil Johnson)