Yahoo Inc. (Nasdaq: YHOO) officials announced an Alibaba spin-off this week, which the company expects to complete in Q4.
The new company will be called Aabaco Holdings and will be made up of $32 billion in Alibaba Group Holding Ltd. (NYSE: BABA) shares and a division named Yahoo Small Business. The BABA shares will account for about 95% of Aabaco's total assets. Yahoo has not provided any financial details of the small business division.
The Alibaba spin-off is a way for Yahoo to avoid the huge capital gains tax it would owe by simply selling its shares in Alibaba.
Some investors will also view it as a secondary way to play Alibaba stock at a much lower price. That could lead to a short-term drop in the Alibaba stock price when Aabaco shares hit the market.
Many also believe that Alibaba could end up buying Aabaco shares. The purchase would likely happen at a premium to the Aabaco stock price, thus banking investors a quick gain.
However, there is little incentive for Alibaba to follow through with a purchase. The company just raised $25 billion through its IPO. It's unlikely the company would want to turn around less than a year later and reacquire those shares.
The Yahoo stock price has climbed nearly 2% from Friday's open.
BABA shares opened today at $83.11. They've dipped 20.2% year to date, but Money Morning experts are extremely bullish on Alibaba stock's long-term potential.
It already dominates the Chinese e-commerce and Internet markets, which are growing at an incredible rate. And now it has its sights set abroad. Founder Jack Ma has plans to turn Alibaba into a global powerhouse, and he's already well on his way...
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