Yahoo Plans to Spin Off Core Business Instead of Alibaba Stake

Webb said the company believed the earlier plan would eventually be ruled tax-free but added that "we were concerned about the market's perception of tax risk, which would have impaired the value" of the entity.

For most of the past year, Yahoo had planned instead to spin off the Alibaba stake into a separate holding company called Aabaco.

Those Asian investments account for the bulk of Yahoo's current market value of about $33 billion. The new company will include the firm's 35% stake in Yahoo Japan and Yahoo's Internet business, according to Reuters.

Yahoo's desire to spin-off its stake in Alibaba stemmed from the idea that this move would unlock shareholder value and increase the company's business. At the same time, Yahoo's search business has been surpassed by Google and investor excitement has migrated to tech rivals such as . The course Yahoo now plans to pursue would end up transferring the Internet operations into newly formed company.

Yahoo Inc. (NASDAQ:YHOO) announced on Wednesday that it was shelving its Alibaba (NYSE:BABA) spin off plans because of tax concerns. A more likely outcome is that an independent core Yahoo does regain a more rational valuation, but continues to retain an image as a company whose best days are behind it.

August 9: Yahoo says Mayer may revise plans to pay shareholders billions of dollars from the sale and instead keep the windfall for other spending.

The spin-off could take up to a year to complete and will require Yahoo to obtain audits, shareholder approval, and approval from the US Securities and Exchange Commission to go forward with the plan.

Verizon said on Monday it could look at buying Yahoo's core business if it was a strategic fit.

The core business for Yahoo is shrinking, but it represents some of the most visited services the Web has. "We believe the business is undervalued".

The news seems to have sat well with investors, however.

In a interview on CNBC later on Wednesday, in which Webb appeared alongside Mayer, Webb re-iterated his faith in the CEO.

"Absolutely. I've never met anybody who works harder, is smarter and cares more".

This was the big story last week as board members prepared to meet for discussions.

Most of the goals that came with the hire of Mayer have not panned out. Even so, Yahoo's net revenue declined by 8 percent from the prior year in the third quarter and an even steeper decline is forecast for the current quarter ending in December.

Yahoo on Wednesday rumors it would no longer spin off Alibaba after months of planning.