Yahoo Inc. is planning to trigger its stake of 15% in China's e-commerce giant Alibaba Group Holding Ltd. in response to pressurize shareholders to deliver its valued investment in e-commerce company, valuing approximately of $40 million.
Yahoo (NASDAQ:YHOO) share price was up by 7% at $51.45 on Tuesday during after trading hours, just after the tax-free spin off announcement was made and the quarterly earnings report surpassing analysts' expectations in revenue and earnings per share were released.
Shareholders believe Yahoo Inc. and its share in Alibaba (NYSE:BABA) will independently have more value as long as, Alibaba shares are not conditional on the regular 35% tax rate.
Colin Gillis an analyst at BGC Partners said, "It is the finest possible outcome. The most important thing is that money goes in to the pocket of shareholders, not spent on acquisition".
Market value of Yahoo is about $45 billion, whereas its total share in Alibaba valued almost at $40 billion. This means Yahoo's current stock price allocates minimal value to the main business of the company. According to some investors the operational business is worth almost $7 to $8 billion.
The spin-off by Yahoo will bring tax advantage and will let the company to simplify its business structure. However, it will also put more pressure on Chief Executive Officer, Marissa Mayer to reinforce company's core advertising and media business. Yahoo's revenue in the last quarter of 2014 decreased by 1.8% with including fees paid to partner websites. Yahoo claims that it earned $0.30 per share in the last quarter beating the analyst estimation by 1 cent.
According to Yahoo Inc. its BOD have approved the tax-free spinoff of its stake, into a new independent investment company. Company's stock will be distributed among Yahoo shareholders and transaction will get close in the last quarter of current fiscal year 2015. The new company will consist of company's $384 million shares in Alibaba. The whole transaction will not have any impact on current management of e-commerce giant company.
JPMorgan (JPM.N), Bank of America Merill Lynch (BAC.N) and Goldman Sachs (GS.N) are the financial advisors on the deal.
Yahoo Inc. stock is up by 0.14%, with stock price $43.13 in after hour trading on Tuesday, February 10th with 30-days mean volume of 20.35 million shares. The company has a 52-week low of $32.15, and a 52-week high of $52.62, with market cap of $40.27 billion and price to earnings ratio of 5.63.