Yahoo Inc. (Nasdaq: YHOO) has been planning for a $23 billion Alibaba spin-off, but the company was dealt a major blow by the IRS yesterday.
While the deal was rejected, the IRS never explicitly said the deal will be taxable, however.
The Alibaba spin-off was designed to return cash to Yahoo shareholders. Naturally, they have reacted negatively to the rejected spin-off news. Yahoo stock was down 2.2% yesterday and opened at $30.40 today.
Alibaba stock has dropped 38.7% in 2015, greatly reducing the value of Yahoo's Alibaba spin-off. When Yahoo officials first announced the plan for the deal, it would have been worth nearly $40 billion.
Yahoo's General Counsel Rob Bell said in a filing this week that Yahoo "will continue to carefully consider the company's options, including proceeding with the spin-off transaction."
Any taxes placed on the Alibaba spin-off would likely total billions of dollars. That would greatly reduce the amount of cash returned to shareholders.
In 2014, YHOO stock climbed 25.6%. The growth was largely fueled by Yahoo's massive position in Alibaba. But including Tuesday's drop, shares of YHOO are now down 38.5% in 2015 thanks to market volatility and worries about Alibaba.
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