Yahoo shares fall on report that new IRS rules may affect Alibaba stake

PUBLISHED : Wednesday, 20 May, 2015, 9:08am
UPDATED : Wednesday, 20 May, 2015, 9:08am

Shares in Yahoo Inc fell 7.6 per cent on Tuesday, as the stock sold off dramatically in the last 20 minutes of the trading day on worries that a potential change in US tax regulations would affect Yahoo's expected spinoff of its stake in Alibaba Group Holding Ltd.

The potential change, which Bloomberg reported that an Internal Revenue Service official discussed at an event of the DC Bar Association on Tuesday, could complicate Yahoo's plan announced in January to spin off its shares in Alibaba tax free.

Yahoo did not respond to immediate request for comment.

The IRS said it was considering changing its rules regarding spinoffs and would suspend requests starting on Tuesday, Isaac Zimbalist, senior technician reviewer at the IRS's Office of Associate Chief Counsel, said at the DC Bar Association event, according to Bloomberg.

The IRS did not respond immediately to a request for comment.

"The concern is there may be road blocks to this event," said Colin Gillis, BGC Partners analyst, referring to Yahoo's spinoff of the Alibaba stake. Shareholders may also worry about the prospects for a potential spinoff of the company's Japan business, Gillis said.

Almost 30 million shares in Yahoo changed hands between 3:40 pm EDT and the 4 pm market close, out of the 41.9 million shares traded in the full session. The trading volume was almost three times Yahoo's 10-day average.

Shares in Alibaba closed up 1.3 per cent at US$88.21. Shares in Yahoo fell US$3.38 to US$40.98.

"People are interpreting [the IRS change] as negative for Yahoo right off the bat," Victor Anthony, analyst at Axiom Capital.