Following Yahoo’s announcement on Monday that it was going ahead with the spinoff of its stake in Chinese e-commerce company Alibaba Group Holding Ltd despite the risk that the deal might not be tax-free, the shares of the company rose as much as 6 percent on Tuesday.
On Tuesday, Yahoo shares touched a high of $29.23 on the Nasdaq even as the company has lost about 45% of its share value this year. On the other hand the shares of Alibaba rose by 1% to reach $57.97 in morning trading on Tuesday.
The US tax regulator, U.S. Internal Revenue Service (IRS), had denied Yahoo’s request of tax waiver in a private letter ruling from the IRS to confirm if the transaction - potentially worth about $23 billion - would result in a tax obligation.
Yahoo's shareholders may have to pay some $9 billion in taxes, in case the IRS denies the tax-free status later to Yahoo.
There are chances that the Yahoo's spin off could be tax free as the IRS said earlier this month that it was working to amend the rules on taxing spinoffs and IRS official sources had later indicated that any amendments would not apply retroactively and hence would not cover the Yahoo spin off.
"In our opinion, the IRS is maintaining the status quo on this issue, and with no changes to guidance on this matter, we believe that Yahoo should be able to complete this transaction in a tax-free manner," Mizuho Securities analysts wrote in a note.
The deal between Yahoo and Alibaba is expected to be completed in the fourth quarter ending Dec. 31.
SunTrust Robinson Humphrey analyst Robert Peck said in a research note tat is was a possibility that Yahoo might able to complete the transaction before the new rules come into effect.
The decision by the company is partly taken due to the pressures from the shareholders one Chief Executive Marissa Mayer to spin off Yahoo's 15 percent stake in Alibaba as the company has been struggling to revive its core online advertising business.
As Alibaba's shares slid amid China's slowing economy and increased competition from smaller rival JD.com Inc, the value of the Yahoo shares in the Chinese online retail company has halved this year.
Earlier Yahoo had said in a regulatory filing that the spin-off will remain subject to certain other conditions including the receipt of a legal opinion on the tax-free treatment of the deal under U.S. federal tax laws.
As on Monday, Yahoo's 384 million shares of Alibaba are worth $22.75 billion
Yahoo has a total market capitalization of about $25.98 billion based on 941 million shares outstanding on July 31 and Monday's close and the value of the shares in Alibaba is just short of that figure.
Yahoo paid $1 billion in 2005 for a 40 percent stake in Alibaba, in a deal credited to the U.S. company's co-founder Jerry Yang.
(Source:www.reuters.com)
On Tuesday, Yahoo shares touched a high of $29.23 on the Nasdaq even as the company has lost about 45% of its share value this year. On the other hand the shares of Alibaba rose by 1% to reach $57.97 in morning trading on Tuesday.
The US tax regulator, U.S. Internal Revenue Service (IRS), had denied Yahoo’s request of tax waiver in a private letter ruling from the IRS to confirm if the transaction - potentially worth about $23 billion - would result in a tax obligation.
Yahoo's shareholders may have to pay some $9 billion in taxes, in case the IRS denies the tax-free status later to Yahoo.
There are chances that the Yahoo's spin off could be tax free as the IRS said earlier this month that it was working to amend the rules on taxing spinoffs and IRS official sources had later indicated that any amendments would not apply retroactively and hence would not cover the Yahoo spin off.
"In our opinion, the IRS is maintaining the status quo on this issue, and with no changes to guidance on this matter, we believe that Yahoo should be able to complete this transaction in a tax-free manner," Mizuho Securities analysts wrote in a note.
The deal between Yahoo and Alibaba is expected to be completed in the fourth quarter ending Dec. 31.
SunTrust Robinson Humphrey analyst Robert Peck said in a research note tat is was a possibility that Yahoo might able to complete the transaction before the new rules come into effect.
The decision by the company is partly taken due to the pressures from the shareholders one Chief Executive Marissa Mayer to spin off Yahoo's 15 percent stake in Alibaba as the company has been struggling to revive its core online advertising business.
As Alibaba's shares slid amid China's slowing economy and increased competition from smaller rival JD.com Inc, the value of the Yahoo shares in the Chinese online retail company has halved this year.
Earlier Yahoo had said in a regulatory filing that the spin-off will remain subject to certain other conditions including the receipt of a legal opinion on the tax-free treatment of the deal under U.S. federal tax laws.
As on Monday, Yahoo's 384 million shares of Alibaba are worth $22.75 billion
Yahoo has a total market capitalization of about $25.98 billion based on 941 million shares outstanding on July 31 and Monday's close and the value of the shares in Alibaba is just short of that figure.
Yahoo paid $1 billion in 2005 for a 40 percent stake in Alibaba, in a deal credited to the U.S. company's co-founder Jerry Yang.
(Source:www.reuters.com)
