Yahoo said Tuesday that it'll spin off its holdings in Alibaba Group into a registered investment company in a move that'll raise a ton of cash, but raise questions about how to deploy it.
The company said that Alibaba will be spun off tax free to shareholders. Yahoo will have its core business and hold its 35.5 percent stake in Yahoo Japan.
When the spin-off is complete, the offspring, called SpinCo for now, will hold Yahoo's 384 million shares of Alibaba, currently valued at $40 billion. A registered investment company looks like a mutual fund or real estate investment fund instead of a working company.
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For Marissa Mayer, CEO of Yahoo, the distribution of Alibaba shares removes the largest question of her tenure. Mayer said in a statement that once the spin-off is complete Yahoo will have generated $50 billion in value to shareholders.
The spin-off is expected to be complete in the fourth quarter of 2015. More details of the transaction will be announced prior to closing.
Going forward, the largest question around Yahoo will revolve around the core business. It'll have one healthy balance sheet to be used for acquisition or reinvention. A smaller Yahoo will also become a more attractive takeover target.
In the fourth quarter, Yahoo reported earnings of $166 million, or 17 cents a share, on revenue of $1.18 billion. Non-GAAP earnings were 30 cents a share, a penny above estimates. Yahoo said mobile revenue in the fourth quarter was $254 million, up 23 percent from a year ago.