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Here’s why Yahoo stock tanked on Tuesday

May 20, 2015, 11:32 AM UTC
"China: Through The Looking Glass" Costume Institute Benefit Gala - Press Preview
NEW YORK, NY - MAY 04: Marissa Mayer, President and CEO of Yahoo attends "China: Through The Looking Glass" Costume Institute Benefit Gala - Press Preview at Metropolitan Museum of Art on May 4, 2015 in New York City. (Photo by Bennett Raglin/Getty Images)
Photograph by Bennett Raglin — Getty Images

Yahoo! Inc.’s (YHOO) fat stake of 384 million shares in Chinese e-commerce giant Alibaba Group Inc. (BABA) has long been its crown jewel—but it is quickly turning to a potential weakness.

Shares of Yahoo fell some 7.5% on Tuesday, all in the final hour of trading, due to an unexpected announcement from a single person. At an event in Washington, D.C., an IRS official told a group of lawyers that the IRS is reconsidering a rule governing tax-free corporate spinoffs. The agency is “particularly concerned,” reports the Times, “about spinoffs in which the operating business comprises only a small portion of the new publicly traded company.”

That sounds a lot like Yahoo’s piece of Alibaba. And spinning it off tax-free is precisely what Yahoo and its chief Marissa Mayer had planned.

As news circulated, Yahoo! shares tumbled from Tuesday’s opening price of $44.38 all the way down to $41.01.

Yahoo's stock plummeted at the very end of the day on Tuesday.
Yahoo’s stock plummeted at the very end of the day on Tuesday.
Yahoo Finance

 

Yahoo has already released a statement that appears to shrug off the IRS news. The company says that, “the IRS’s statement is not specific to Yahoo’s planned fourth-quarter 2015 spin-off of its remaining stake in Alibaba Group and Yahoo Small Business, reflects no change in applicable law, and does not affect previously filed ruling requests,”

Mayer has been under intense pressure over the past year, from activist investors like Jeff Smith of Starboard Value, to hurry up and unload the Alibaba shares.
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