The IRS Goes Activist on Jeff Smith, Starboard Value

One of the most important spin-off transactions awaited by investors is the one involving Yahoo! Inc. (NASDAQ:YHOO)’s stake in Alibaba Group Holding Ltd (NYSE:BABA), which could be worth over $20 billion, against Yahoo’s market capitalization of around $30 billion. Yahoo’s plans represented one of the catalysts that led to the IRS issuing its guidance. The company has asked the tax authority to issue a ruling that the spin-off, which also included a small part of its services business with around $50 million in EBITDA, will be tax free, but the IRS declined to approve the request. Yahoo currently intends to go on with the spin-off, as the IRS did not explicitly stated that it will taxable and experts suggested that the company will most likely restructure the assets it intends to separate alongside the stake in Alibaba.

Investors in Yahoo! Inc. (NASDAQ:YHOO) have been bullish on the company because of its large equity investments, as many have said that its core business has been lagging for the last years. At the end of June, 104 funds from our database held $5.92 billion worth of its stock, representing over 16% of the company. Starboard, which has initiated a stake in Yahoo! Inc. (NASDAQ:YHOO) right after Alibaba Group Holding Ltd (NYSE:BABA)’s IPO in September 2014, has been gradually reducing its position in the first six months of the year and reported holding 3.55 million shares as of the end of June, versus 7.72 million shares it held initially.

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