Yahoo shares rose as much as 6 per cent yesterday after the company said it would proceed with the spin-off of its stake in Chinese e-commerce company Alibaba, despite the risk that the deal might not be tax-free.
Shares of Yahoo, which have fallen about 45 per cent this year, touched a high of $29.23 on the Nasdaq. Alibaba shares were up 1 per cent at $57.97 in morning trading.
Yahoo had sought a private letter ruling from the IRS to confirm if the transaction – potentially worth about $23 billion – would result in a tax obligation. The US tax regulator denied the request. If the IRS denies the tax-free status later, Yahoo’s shareholders may have to pay some $9 billion in taxes.
The IRS said earlier this month that it was working to amend the rules on taxing spinoffs. But an IRS official later indicated that any tax amendments would not apply retroactively, implying that Yahoo’s spin off could be tax-free.
Yahoo expects to complete the deal in the fourth quarter ending December 31st. The company may be able to complete the transaction before the new rules come into effect, SunTrust Robinson Humphrey analyst Robert Peck said in a research note. – (Reuters)
