Yahoo announced plans for a tax free spin-off of its stake in Chinese e-commerce giant Alibaba.
A new company named SpinCo is to become a separate publicly traded company. It is expected to own 384 million shares of Alibaba, valued at $40bn.
The company is expected to be split into two; one holding Yahoo’s remaining 15% stake in Alibaba and the other will hold its 35.5% interest in Yahoo Japan.
Shareholders are expected to reap the maximum reward out of the spin off due to its tax free nature.
Yahoo’s decision is likely to increases the chances of Alibaba buying back the shares because SpinCo is expected to create a parallel shadow market of Alibaba’s US-listed shares, sources familiar with the matter told Financial Times.
Yahoo’s $47bn equity value is mostly based upon the company’s stake in Alibaba, which has been a point of focus for investors.
Yahoo shareholders are likely to receive all of the shares of the new investment company, with transactions expected to be completed by the fourth quarter of 2015.
The internet giant is yet to nominate a board or management team for the new company and the ratio of shares to be distributed.
In 2005, Yahoo invested $1bn in Alibaba, and it sold 140 million shares of the Chinese e-commerce giant during Alibaba’s IPO which helped Yahoo reap $9.4bn before tax.
Yahoo CEO Marissa Mayer said: "Throughout my tenure with the company, we have worked tirelessly 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 and exclusively to our shareholders.
"Through share repurchases to date, we have returned approximately $9.7 billion of proceeds from Alibaba. Post-spin, using the closing price for Alibaba as of January 26, we will have returned nearly $50 billion dollars of value to our shareholders."
