Yahoo to pursue plans to spin-off stake in Alibaba Group Holding

Yahoo plans to pursue plans to spin off its stake in Alibaba Group Holding Ltd after comments by the IRS led to a sharp decline in share price amid concerns it could complicate the move.

Potential changes to the tax-free treatment of spinoffs should not affect requests filed prior to the changes, the web portal said in an emailed statement.

It added, the company had already lodged its plan and was still working toward undertaking the transaction in the fourth quarter.

The shares fell 7.6 per cent yesterday on concerns, changes at the Internal Revenue Service would affect efforts to exit from Alibaba. Any obstacle to the spinoff would scare away shareholders who bought Yahoo expecting they would get a tax-free payout when the deal closed.

According to commentators, the spinoff was a major step for chief executive officer Marissa Mayer, activist hedge fund Starboard Value LP and other investors who had been pushing the company to return cash to shareholders through a buyback, find ways to cut taxes and avoid major acquisitions.

Yahoo's Asian assets, which include a stake in Yahoo Japan Corporation, had supported Yahoo's value, giving Mayer room to turn around the Sunnyvale, California-based company.

"Yahoo continues to work toward completing the planned spinoff in Q4 2015," the company's spokesperson said in the statement.

The IRS has been mulling changes to its rules on spinoffs and might suspend new requests, according to an IRS statement.

An IRS official said at a legal conference yesterday, that it had been asked whether it was considering a change in its rules on "spinoffs in which the active trade or business of the distributing corporation or the controlled corporation is small in relation to its other assets". The IRS official said, "We are thinking about it. But we have made no decisions."

The official added, "While we are studying these matters, ruling requests that are already in house will continue to be handled in the normal fashion for now, but this may change. Requests received after this announcement may be held in abeyance as we study the area, and ultimately we may decide not to entertain these ruling requests at all."