In January 2015, Yahoo planned to hand shareholders its 15% stake in Alibaba tax-free. Nine months later, the U.S. Internal Revenue Service refused to guarantee that exemption. Proceeding without an official blessing meant risking a multi billion dollar tax bill for shareholders. On December 9, 2015, Chief Executive Marissa Mayer abandoned the original plan and chose the exact opposite path.

Why was Alibaba so important to Yahoo?

Instead of carving out the Alibaba holding, Yahoo will spin off its operating business instead. The company will place its primary internet properties—including its content portals, mobile applications, and ad-tech platforms—into a new public company. Existing shareholders will receive stock in this new entity on a pro-rata basis. Mayer argues this reversed setup insulates investors from tax penalties while forcing public markets to value Yahoo’s operating business on its own merits.

The math behind the restructuring exposes Yahoo's awkward reality. Back in 2005, Yahoo bought a 40% stake in Alibaba for $1 billion. That investment grew so dramatically that its remaining 15% share is worth roughly $30 billion. Because Yahoo’s entire market capitalization floats around $33 billion, Wall Street was effectively pricing Yahoo’s core web business, which reaches hundreds of millions of users, at just $3 billion to $5 billion.
Clearing regulatory hurdles and winning shareholder approval for the new setup could take a full year. Wall Street reacted cautiously, sending Yahoo shares down 3.1% to $33.76 after an initial rise.

Endpoint Technologies analyst Roger Kay noted that while Yahoo's massive audience gives its ad business real utility, it remains questionable whether Mayer can turn the business around.

Chairman Maynard Webb pushed back on rumors of an outright sale, stating the board wants to separate the assets to fix performance.