Investors Eye Yahoo's Decision Not To Spin Off Alibaba

Investors are keeping an eye on shares of Yahoo! Inc. YHOO Wednesday after the company confirmed it has decided not to move forward on the proposed spin-off of its $31 billion Alibaba Group Holding Ltd BABA stake. Investors may not be as patient this time around as Yahoo's portal is back in limbo. Many of Yahoo's major shareholders have already expressed similar concerns to the board.

Yahoo shares were down more than 4.5 percent, near 33 in midday trading in the stock market. Yahoo stock touched a four-month high of 36.39 on Dec. 2.

Despite the decision to halt the proposed spin-off, Yahoo's challenges are still far from removed. Its proposed reverse spin-off may even take a year or more to complete. Any potential buyer may be deterred from making an offer or undermine the price it is willing to pay for the company.

Yahoo has been placed under major scrutiny to take initiative, especially from the activist hedge fund Starboard Value. Starboard Value sent a letter to Yahoo!'s board of directors urging it not to spin off the Alibaba stake, instead focusing on selling the search and advertising business.

Yahoo stated it has made no determination to sell any part of the company and that its core business is undervalued by the market. This doesn't mean that an offer would never be entertained by the company in the interim, however any sale would require Yahoo to first separate the Alibaba stake from the rest of its business.

Yahoo's operating income has fallen 89 percent in the past 12 months versus a year earlier. Yahoo shares have been down over 30 percent on the year.