With all the uncertainty surrounding the question of whether the IRS will increase the tax on Yahoo’s $40 billion Alibaba group stake, the internet company was downgraded.
On Wednesday morning, Evercore downgraded Yahoo Inc. (YHOO, +1.24%) from buy to hold. This downgrade came as a result of concerns regarding taxes and the company’s stake in Alibaba Group (BABA, +0.09).
Added to this, Evercore also lowered the company’s stock price target from $55 to $48.
Meanwhile, on Tuesday, the shares of Yahoo closed 1.5 percent lower to settle at $42.85 a share before falling an additional 0.5% in premarket trade.
In a statement released by analyst Ken Sena, he commented that there is still hope for an upside to Yahoo’s $40 billion stake in Alibaba despite comments from the Internal Revenue Service (IRS) in the U.S. which indicated last week that some large cap companies, such as Yahoo, may in the future face stricter tax considerations under a tax law which covers tax free spin offs.
In response to the comments by the IRS, Yahoo, in a move aimed at lowering its tax burden, said that it has already established an independent company known as SpinCo, in order to take over its ownership of Alibaba shares. This move is also expected to make the shares transitioning process to existing Yahoo shareholders much easier.
Added to this, Sena added that while Yahoo might have tax recourse in its reach should the IRS come down hard on the internet company; any hurdles along the way could delay the application process which in turn will impact the core turnaround efforts that Yahoo currently has in place.
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