Tech giant Yahoo! Inc. has filed to spin its shares in Alibaba Group Holding Ltd., the company which owns online marketplace Alibaba.com, into a new company called Aabaco Holdings Inc., Bloomberg reports.
The new legal entity is to be independently traded and to retain roughly 15 percent of Alibaba ownership interest, which equates to roughly 384 million shares, Yahoo announced in a statement on Friday. The new company, Aabaco, will also include Yahoo’s small-business service.
Formal documents to spin off the company’s 15 percent stake in Alibaba in the fourth quarter of this year were filed late on Friday with the Securities and Exchange Commission.
The New York Times points out in a report on the company’s shares spin off that the Internet giant has warned its shareholders in its SEC filing that it might cancel the spinoff if federal tax authorities fail to provide the company with advance written assurance that the transaction will be tax-free for shareholders.
In order to qualify for tax-free status under federal law, spinoffs of this nature must include an operating business, not just stock holdings, which is why a key aspect of the company’s plan includes the incorporation of its small business service division.
The request for advance written assurance comes in light of a warning issued back in May by the Internal Revenue Service in which the IRS warned that the government was considering tightening the rules, which could have an impact on Yahoo’s spinoff plan.
In the first quarter of this year, back in January, the Chinese e-commerce giant Alibaba saw its shares fall after counterfeits landed the company in hot water.
What are your thoughts on Yahoo’s plans to spin its shares of Alibaba off into a new company and avoid shareholder taxation by incorporating its small business service division into the new company?