Yahoo! Inc. shares climbed after the company said it was on track to spin off its stake of about $22 billion in Alibaba Group Holding Ltd. this year.
Yahoo’s board authorized the spinoff, even though the U.S. Internal Revenue Service declined to grant the company an advance ruling blessing the deal, Yahoo said in a filing Monday. While the agency is stepping up scrutiny of such transactions, the company is going forward with the plan, which was announced in January, after the IRS indicated a decision isn’t likely to be retroactive.
The shares rose 2.4 percent to $28.26 at the close Tuesday in New York, leaving the stock down 44 percent this year. Alibaba rose less than 1 percent to $57.82.
Yahoo shareholders still could be “on the hook for any tax liability should the IRS challenge Yahoo’s interpretation of tax treatment,” Rob Sanderson, an analyst at MKM Partners, said in note to investors. But risks to the deal are already accounted for in Yahoo’s stock price, he wrote. Sanderson has a buy rating on the stock with a 12-month price target of $43.
Chief Executive Officer Marissa Mayer, seeking to address doubts on Wall Street about how she’s managing the company’s assets, is aiming to spin off the roughly 15 percent stake in China-based Alibaba and potentially save about $9 billion in taxes. Analysts have questioned for months whether the tax issue would stop Mayer from completing the proposal.
“Neither this ongoing guidance project nor the IRS’s decision not to rule with respect to the Aabaco spinoff transaction changes the current law applicable to the proposed spinoff,” Yahoo said in a filing, referring to the corporate entity that will be spun off.
Yahoo also noted that an IRS official indicated this month “that any future guidance issued as part of the project would not apply retroactively to transactions completed prior to the issuance of such guidance.”
Yahoo said Aabaco Holdings Inc., the spinoff, will be listed on Nasdaq under the ticker symbol AABA. The company will include the small business unit of Yahoo as part of the transaction.
Sarah Meron, a spokeswoman for Sunnyvale, California-based Yahoo, didn’t return a voice mail seeking comment.
“Yahoo has made it pretty clear in the past that it wants to spin off Alibaba’s shares,” said Tiffany Feng, an analyst at BOC International Holdings Ltd. in Hong Kong. “There is some level of concern that Yahoo might want to sell the shares in the long run.”
A lockup restriction on Yahoo’s stake expired earlier this month.