Should Yahoo Sell Alibaba Stake or the Web Business Where It Began?

'Virtually Any Decision' Likely a Positive

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Yahoo CEO Marissa Mayer.
Yahoo CEO Marissa Mayer. Credit: David Paul Morris/Bloomberg
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Yahoo shares jumped the most in more than a month as the board meets and members consider a range of options including whether to sell a stake in Alibaba Group Holding.

In a series of meetings this week, one option the board is discussing is whether to stick to the company's plan to spin off its stake in Alibaba, a person familiar with the situation said. The board is also weighing whether it will seek to find a buyer for Yahoo's web businesses, the Wall Street Journal reported Tuesday, citing unnamed people familiar with the matter. Representatives for Sunnyvale, California-based Yahoo declined to comment.

Chief Executive Officer Marissa Mayer had planned to complete the spinoff by January and promised to update investors on her strategy for the rest of the ailing web portal. Ms. Mayer is facing renewed pressure from activist investor Starboard Value, which last month threatened a proxy fight if she doesn't make drastic changes to her plans, including selling the main search and display advertising businesses.

"Virtually any decision" is likely a positive, Robert Coolbrith, an analyst at CRT Capital Group, wrote in a note to investors.

In more than three years at the helm, Ms. Mayer has made little progress turning around the company, whose revenue is forecast to drop 8% in 2015. Most of the company's value is tied to its stake in Chinese e-commerce giant Alibaba. In a letter dated Nov. 19, Starboard estimated that Yahoo's enterprise value is $31.2 billion. Excluding the Alibaba stake, cash holdings and partial ownership ofYahoo Japan Corp., Starboard valued Yahoo's core business at about $2 billion.

Spokesmen for Alibaba and SoftBank Group Corp., the biggest shareholder in Yahoo Japan, separately declined to comment. Yahoo Japan would consider any options for buying back its shares, said Masaki Hanyu, a Tokyo-based spokesman. He declined to comment on the company's potential interest in Yahoo assets.

Ms. Mayer has been adding services for smartphones and tablets, new tools for advertisers and media content in a bid to attract audiences and marketers. Yet Yahoo has lost advertising market share in key areas such as mobile, where rivals such as Facebook and Google have gained ground. In October, Yahoo said it would update shareholders with a new strategic plan for the post-Alibaba era during its next earnings call, which is expected in January.

She's also lost several executives in recent months, including Jacqueline Reses, Yahoo's chief development officer, who had shifted her focus this year to the Alibaba share sale. Rob Barrett, who led media strategy, also departed, Re/code reported last month, citing sources it didn't name. Kathy Savitt, who had been Yahoo's chief marketing officer, left earlier this year.

'Permanent decline'?

Yahoo's core business could be worth about $1.9 billion, not including about $5.8 billion in cash expected at the end of 2016, along with some growth assumptions, Brian Wieser, an analyst with Pivotal Research Group, wrote Tuesday in a note.

"Realizing value is far from assured," he said. "Yahoo's core business is in seemingly permanent decline."

The November letter from Starboard referred to "numerous conversations and meetings" held privately with Yahoo in the past year, and the activists' growing frustration with the company's reluctance to adapt its plans as Yahoo's shares -- and Alibaba's -- have declined.

Starboard doubled its stake in Yahoo in the third quarter, after earlier selling part of its holdings. The investor -- one of the most prolific U.S. activists -- typically targets small- and mid-cap public companies it considers undervalued, pushing executives and directors for changes such as unit spinoffs and asset sales.

Yahoo is planning to complete the spinoff of its Alibaba stake, now worth more than $30 billion, by next month, Ms. Mayer said on the company's third-quarter conference call in October - - later than a prior target of year's end. She said the transaction would let Yahoo focus on markets where it can make an impact.

"I have very aggressive expectations for Yahoo's core business," Ms. Mayer said on the call. "We have the right talent, the right strategy, and the right assets to drive long-term sustainable growth for our investors."

The prospect of the U.S. Internal Revenue Service taxing the Alibaba transaction also has weighed on the stock. Even though the IRS declined to give Yahoo an advance ruling blessing the deal, Yahoo's board authorized the spinoff in September. 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 any decision isn't likely to be retroactive.

-- Bloomberg News

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