Yahoo said on Wednesday that it had dropped a plan to spin off its $31 billion stake in Alibaba, the Chinese e-commerce company. Instead, the company will spin off all of its other assets, including its stake in Yahoo Japan, into a new company.
The decision not to sell the Alibaba stake, which was reported on Tuesday, was driven by “the market’s perception of tax risk” associated with the Alibaba plan, Yahoo said in a statement on Wednesday morning.
“The board remains committed to accomplishing the significant business purposes and shareholder benefits that can be realized by separating the Alibaba stake from the rest of Yahoo,” Maynard Webb, the chairman of Yahoo’s board, said in the statement. “To achieve this, we will now focus our efforts on the reverse spinoff plan.”
Yahoo shareholders would end up with stock in both companies. The company said the new plan might take a year or more to conclude. Yahoo will provide more details during a conference call with investors at 9 a.m. E.S.T., before the stock market opens.
Yahoo shares, which closed Tuesday at $34.85, rose more than 2 percent in premarket trading.
Mark May, an Internet analyst with Citigroup, published a note on Tuesday night estimating the fair market value of Yahoo’s stock under the new plan outlined by directors at $40 a share, compared with $32 if Yahoo had proceeded with the original strategy.
That stark difference in Wall Street’s view of the alternatives helped drive the board’s decision.
Separately, Yahoo said that one of its directors, Max Levchin, had resigned to focus on his duties as chief executive of Affirm, an online lending company. The board has no plans to replace him and will shrink to eight members.
The change in Yahoo’s strategy, which follows deliberations by the board over the last week, is the latest effort by Marissa Mayer, the chief executive, to assuage shareholders. Ms. Mayer, who was hired in 2012 to turn around Yahoo, had planned to spin off the company’s 15 percent stake in Alibaba, bundled with a small-business services unit, into a new company called Aabaco. She then planned to focus on improving the company’s core business, the sale of advertising that is shown to the roughly one billion users of Yahoo’s apps and websites.
Ms. Mayer is now effectively back to square one. Yahoo’s core Internet operations are struggling, even though the chief executive has made dozens of acquisitions, added original video and magazine-style content, and released new apps. The shares in Alibaba remain Yahoo’s most lucrative asset, with the company’s $8.5 billion stake in Yahoo Japan a distant second. The rest of Yahoo is worth $3 billion to $8 billion, according to analysts’ estimates.
Much of the back-and-forth over Yahoo’s strategy has had to do with taxes. Yahoo shareholders want to reap the gains that the company has made from its Alibaba stock, which it bought a decade ago for a relative pittance. A spinoff of Alibaba shares into a separate entity would have helped mitigate the capital gains tax bill, but the move became less appealing after the Internal Revenue Service said it might crack down on such transactions.
Starboard Value, a hedge fund, had been agitating for a sale of Yahoo’s core business instead, and it sent a letter to the company last month in which it laid out its reasons. In essence, Starboard said that while selling the core business would probably incur some capital gains taxes, those taxes would be lower and more certain than the $10 billion tax bill that could be due from the Alibaba spinoff if the I.R.S. successfully challenged the structure of the deal.
Yahoo’s shift in strategy comes as Ms. Mayer and her husband, Zachary Bogue, are expecting the birth of twin daughters this month. She has said she plans to take a “limited time away” for maternity leave and will be “working throughout.”