Yahoo Looking to Unload $14B Alibaba Stake Tax-Free

In the midst of planning its own possible sale, beleaguered Internet giant Yahoo is exploring a new plan [1] to get rid of its valuable Asian holdings—without having to pay any taxes.

According to The Wall Street Journal, the company is considering a strategy called a “cash-rich split-off” that would allow it to sell its 40 percent stake in Chinese e-commerce company Alibaba—valued at $14 billion—tax-free, saving about $5 billion.

In order to perform a cash-rich split-off, Alibaba would have to place cash and assets into a newly created subsidiary. The stock from that subsidiary then would be traded for Yahoo’s 40 percent stake. Yahoo would be left with cash and assets, while Alibaba would get its shares back. And because U.S. tax law doesn’t define this transaction as a sale, no taxes would be levied on it.

Alibaba has long had interest in buying back Yahoo’s stake, but the two companies have been unable to come to a buyout agreement and have lately been “bickering over terms.” Sources said that Alibaba executives are hoping to buy the stake at a price lower than what Yahoo believes it’s worth because Alibaba doesn’t believe that there will be many competing bidders. But if Yahoo does get an offer from another company, it is contractually obligated to offer the stake to Alibaba at the same price, regardless.

Sources also said that Yahoo could take the same cash-rich split-off approach to shed its 35 percent stake in Yahoo Japan, which the company estimates to be worth more than $6 billion. The resulting cash would be returned to shareholders or used to fund a new strategy for Yahoo's core business, sources told the WSJ.