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The
company's shares fell 3.4 percent to $29.85 in premarket trading
on Wednesday. At least eight brokerages cut their price targets
on the stock, but kept their recommendations unchanged.
Yahoo said on Tuesday the U.S. Internal Revenue Service (IRS)
denied its request for a private letter ruling (PLR) on a
possible tax-free deal that could fetch it $23 billion.
PLRs are requested when a company wants to confirm if a
prospective transaction could result in a tax violation.
The IRS, however, could approve or deny the tax-free status
later. The spinoff is planned for later this year.
"We believe the likelihood of a positive tax outcome for the
company diminishes as more time passes; this remains the core
overhang on Yahoo's valuation," Nomura Equity Research analysts
said in a research note.
Yahoo's stock has lost more than a quarter of its value in the
past year as the company struggles to revive its core online
advertising business.
Still, analysts are largely positive, linking much of the
company's value to its stake in Alibaba and Yahoo Japan. Of the
42 analysts covering Yahoo, eight rate it a "strong buy," 19 a
"buy" and 15 a "hold."
The IRS's denial is "not a good sign, but there is still hope,"
Barclays Capital analyst Paul Vogel said. He cut his price
target by 22 percent to $35 from $45.
Piper Jaffray & Co was the most bearish on the stock, slashing
its target by $22 to $32.
The stock fell about 16 percent in post-market trading
immediately after the announcement but pared most of those
losses.
Yahoo said it would weigh its options, including proceeding with
the spinoff. But a failed deal will put more pressure on Chief
Executive Marissa Mayer, whose turnaround efforts have had
little effect on Yahoo's growth.
The company may also consider other alternatives such as a
spinoff of Yahoo's core business with the company's Alibaba and
Yahoo Japan Corp stakes left behind in the current corporate
structure, analysts said.
(Reporting by Fareha Khan in Bengaluru; Editing by Sayantani
Ghosh and Saumyadeb Chakrabarty)
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