Daily Management Review

Spinoof Denial by IRS to Derail Yahoo's Plans to Gain from Alibaba Deal


09/09/2015




Spinoof Denial by IRS to Derail Yahoo's Plans to Gain from Alibaba Deal
Dealing a setback blow to Yahoo Inc.’s tax-free plan to spin off some $23 billion worth of shares in Alibaba Group Holding Ltd, the federal government denied the internet company tax spinoffs.
This could potentially jeopardizing one of Chief Executive Marissa Mayer's defining moves in her three years running the company.

On Tuesday, Yahoo revealed, via a filing with the US Securities and Exchange Commission, that it was withdrawing its application for a tax spinoff after it realized that its application would be rejected by the Internal Revenue Service.   

However Yahoo clarified that it was not ruling out the spinoff as the IRS indicated it has not concluded the planned spinoff should be taxable.

“Yahoo’s board will continue to carefully consider the company’s options, including proceeding with the spinoff transaction,” said Yahoo General Counsel Ron Bell in the filing.

While a spokesperson from the IRS said the agency doesn’t comment on individual taxpayers. A Yahoo spokeswoman declined to comment beyond admitting to the filing.
Since the announcement in January by Yahoo about its plan to spin off 384 million Alibaba shares which is equivalent to about 15% of the Chinese e-commerce giant, there were concerns among the Yahoo investors about the tax issues.
 
In case the IRS completely rejects Yahoo’s tax spinoff proposal, the IT giant would be left with just two choices - incurring a tax in the billions of dollars or scrapping the plan for a spinoff altogether.
 

The deal as well as the tax spinoff is very important to Ms. Mayer as she is accused of having failed to show meaningful growth in the company’s core ad business.

In the months following the January announcement, shares of the Yahoo have been rising primarily riding on the investors’ growing enthusiasm for its Alibaba stake and the CEO’s commitment to return billions of dollars to shareholders through a spinoff.

The value of the Alibaba stake has declined after it took had reached $40 billion when Yahoo unveiled its spinoff plan.

However shares of the IT major fell since May after the IRS indicated that the agency was considering changes to its rules governing spinoffs.

Yahoo, aware of the possibility of rejection of a spinoff, had listed the possibility of a rejection by the IRS as the first “risk factor” in its registration statement for Aabaco. This is the planned new spinoff company. yahoo also expressed doubts about tax releif from the deal in China.

 “The board of directors at Yahoo is not going to risk incurring billions of dollars in taxes unless it has adequate assurance that the transaction will be tax free,” said Gary Friedman, a tax partner at law firm Debevoise & Plimpton LLP.

Apart from obtaining a a tax-free spinoff from the IRS< Yahoo can also seek the opinion of an outside legal counsel.

“It would be difficult for outside counsel to provide Yahoo with a tax opinion that reaches a very high level of certainty now that the IRS has refused to rule,” Mr. Friedman said.

 “It’s been anything but a smooth ride toward monetizing Alibaba. We find ourselves in situation now where it’s uncertain how this will proceed,” said Brian Wieser, an analyst at Pivotal Research.
 
(Source:www.reuters.com & www.wsj.com) 






Science & Technology

NASA’s Mars Mission To Make Use Of Cold War-Era Atomic Rockets

Israel Completes Mars Habitat Simulation Experiment

Just $24 Earned By Hackers From The Huge Cryptojacking Campaign Conducted Last Week

New Molecule That Quickly Fights Cancer Cells Identified By Swedish Scientists

The U.K.’s Health Sector To Integrate Israeli ‘Digital Health’ Technology

Cryptocurrency Mining Malware Infects Government Websites In Multiple Countries All Across The World

New Research Into Space Settlement And Space Habitation Will Be Supported By Seed Grants Launched By UAE

NASA Confirms Mystery Satellite To Be Its IMAGE Satellite

Facebook To Put A Ban On Cryptocurrencies Ads

Study Show An Early Sign For Alzheimer's Is Sleep Disruption

World Politics

World & Politics

Australia To Welcome Britain On The Latter’s Interest In Joining TPP

South African President Zuma Finally Resigns, New President To Be Elected Soon

13 countries with the best healthcare system

France is coming closer to Iran

India-Russia Develops Supersonic Missile Which Could Raise Concerns In China

Yet another serious political risk for Europe: Italian elections coming soon

Seven Weeks Time Period , Says Theresa May, For Agreement On Brexit Transition Deal

Germany on the brink of political chaos