After nearly a week of meetings, Yahoo CEO Marissa Mayer on Wednesday said the company won't move ahead with the planned spin-off of its Alibaba Group Holding Inc. (NYSE: BABA) stake.
The Alibaba spin-off was scheduled for the end of January. However, the spin-off could have triggered a massive tax bill over $10 billion if the IRS successfully challenged the structure of the deal.
The mere thought of such a meteoric tax alarmed Yahoo! Inc. (Nasdaq: YHOO) investors.
Last month, major shareholder Starboard Value sent a letter to Yahoo CEO Marissa Mayer pressing the company to halt the Alibaba spin-off. The hedge fund said Yahoo should instead find a buyer for its core business. That sputtering segment includes advertising, search technology, Yahoo! Sports, and the Tumblr blogging platform.
Today, Yahoo said it will focus on a new plan that includes spinning off its core business as well as its stake in Yahoo! Japan.
Yahoo's stake in Yahoo! Japan is worth roughly $8.5 billion. The rest of the business is estimated to be worth between $3 billion and $8 billion, according to analysts' estimates. Yahoo's $31 billion stake in Alibaba is by far its most valuable asset.
Yahoo's new plan would likely be done via a "reverse spin." That could save shareholders billions of dollars in taxes. But such a maneuver could take a year or longer.
It raises the likelihood that an activist investor could challenge the plan in a proxy fight. It also raises chances a buyer could surface for Yahoo's core business during that time.
On a conference call Wednesday, Yahoo made it clear it has no immediate plans to sell the company. It also believes the company is undervalued.
Chairman Maynard Webb confirmed in an interview with CNBC Wednesday that company officials aren't proactively shopping the company. But Webb added the "board has a fiduciary obligation to engage with any person who comes forward with a good offer."
And it appears like just a matter of time before Yahoo CEO Marissa Mayer finds the right deal...
What's Next for Yahoo CEO Marissa Mayer
While Yahoo's core business is dwindling, it still represents some of the most visited services on the web. Yahoo! Mail and Yahoo! News are collectively the third-most visited Internet sites in the United Sates. They had more than 210 million visitors in October alone, according to comScore.
Despite any potential deals, Yahoo CEO Marissa Mayer's stint with the company may be coming to a close.
When Mayer took the helm at Yahoo in July 2012, hopes ran high that the former Google executive would turn around struggling Yahoo. But during her three years, the company's core business has shrunk.
Upon Mayer's arrival in 2012, Yahoo's sales totaled $4.5 billion. In 2014, the tally was $4.4 billion.
Additionally, Yahoo hasn't gained ground in the digital ad market dominated by Google Inc. (Nasdaq: GOOG, GOOGL) and Facebook Inc. (Nasdaq: FB). Yahoo's slice of digital ad spending worldwide is expected to dip to 2.0% in 2015. That's down from a 3.4% share in 2012, according to eMarketer Inc.
The flight of key executives has also increased pressure on the company's board to consider Mayer's future.
Max Levchin just notified Yahoo that he is immediately resigning from Yahoo's board. The serial tech entrepreneur, who co-founded PayPal Holdings Inc. (Nasdaq: PYPL), was Mayer's first addition to the board in December 2012. He had worked briefly with Mayer at Google after the search titan acquired his startup Slide Inc. in 2010.
Development Chief Jack Reses and Marketing Partnerships leader Lisa Licht both left in October. CMO Kathy Savitt and Senior Vice President of Yahoo's home page Peter Chernin left before that, and Re/code reported that 10 other executives have left Yahoo since the end of 2014.
News of Yahoo's new strategy failed to excite investors. The Yahoo stock price slipped 4.4% to $33.26 in afternoon trading. Shares are down a punishing 34% year to date. As the stock price continues to fall, pressure will keep mounting for Yahoo CEO Marissa Mayer.
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