Yahoo establishes plan to spin off Alibaba stake

Yahoo Inc plans to spin off its 15 percent stake in China's Alibaba Group Holding Ltd, responding to pressure to hand over to shareholders its prized e-commerce investment valued at roughly $40 billion.

Shares of Yahoo rose about 7 percent to $51.45 in after-hours trading on Tuesday (US time), following the tax-free spinoff announcement and earnings which just beat analysts forecasts.

The move to spin off the Alibaba stake satisfies a persistent investor demand, but could also ratchet up pressure on Yahoo Chief Executive Marissa Mayer to make quicker progress in strengthening Yahoo's struggling media and advertising business.

Shareholders feel that Yahoo and its stake in Alibaba would be worth more separately, as long as the Alibaba shares are not subject to the standard 35 percent tax rate that would be incurred from selling the shares.

Yahoo was worth $45 billion at Tuesday's market close.

That includes its Alibaba stake of about $40 billion, meaning the Yahoo share price assigns little value to the core business. Some investors believe the e-mail, website and other operations are worth between $7 billion and $8 billion.

Yahoo said its board of directors has authorized a plan to spin off the stake, tax-free, into a newly formed independent registered investment company.

The stock of the company will be distributed pro-rata to Yahoo shareholders and the transaction is expected to close in the fourth quarter of 2015, Yahoo said.

The new entity will include Yahoo's 384 million shares in Alibaba as well as an unspecified "legacy, ancillary" Yahoo business, the company said.

Yahoo's revenue, excluding fees paid to partner websites, declined 1.8 percent year-on-year in the final three months of 2014 to $1.18 billion, just shy of Wall Street expectations.