- CNBC's David Faber reports Yahoo (YHOO - unchanged) is "still focused on moving ahead" with its Alibaba stake spinoff after the IRS denied the company's request for a favorable private letter ruling (PLR) that would've paved the way for a tax-free spinoff. However, he adds Yahoo is also considering a spinoff of its core business and Yahoo Japan (OTCPK:YAHOY) stake, and will decide in the next few weeks.
- Several firms have cut their targets in response to the IRS decision. Cantor's Youssef Squali (Buy, target cut to $45 from $56) now puts the odds of a tax-free spinoff at 50/50. "While the IRS also indicated that it wasn't ruling adversely on the [tax-free spinoff] request, we view this as a black eye for the Yahoo team considering that it is the architect of this much-anticipated transaction. It also biases the outcome of this decision more negatively in the mind of investors, in our view."
- Nomura: "We believe the likelihood of a positive tax outcome for the company diminishes as more time passes; this remains the core overhang on Yahoo's valuation." Evercore's Ken Sena (Hold, $38 target) argues the lack of either a favorable PLR or an IRS ruling on whether the spinoff will be taxable "[moves] the case into uncharted territory historically."
- Yahoo is now near breakeven; the Nasdaq is up 0.7%. With shares trading near $31 as of yesterday's close, some tax concerns were already priced in.
- Update (10:55AM ET): Yahoo is now up 1.1%. Helping out: Alibaba is up 4.4%.