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It's Come to This: Yahoo's Future Now Hinges on Taxes (And Not Products)

Score one for the accountants.

Internet companies are about a lot of things, but primarily their success hinges on making great and innovative products. And unless the execution of getting those offerings out is just abysmal, this trumps all in Silicon Valley.

That was the alleged promise of bringing in Google wunderkind Marissa Mayer as Yahoo CEO more than three years ago.

Now the company’s fate seems to be in the hands of tax attorneys, rather than entrepreneurs, which tells you all you need to know about Yahoo at the end of 2015.

Last week, Re/code and others reported that the board of the Internet giant was seriously considering pausing the spinoff of its enormously valuable stake in China’s Alibaba Group.

The reason: While Mayer and Yahoo CFO Ken Goldman were assured by their pricey tax advisers at Skadden Arps that the transaction would be tax-free, the Internal Revenue Service would not provide any guarantee of that.

This was enough to send activist shareholder Starboard Value into a tizzy, after its previous tizzy demanding the spinoff to unlock value from the sagging Yahoo core business.

In a very smart switcheroo, it demanded that Yahoo stop the spinoff due to the potentially onerous taxes and proceed with a lesser-tax sale of its Internet businesses.

No surprise that into this messy breach stepped possible buyers, sharpening their pencils to see what deal they could slice off a potential Yahoo carcass. Case in point: A spate of top Verizon execs — who are normally quiet about their intentions — did not even bother to hide their carving knives from public view this week.

“What I would tell you is we didn’t get into the media company business just to be a single-digit market share player,” EVP Marni Walden told Re/code on Wednesday. “We have much bigger aspirations of how we want to grow that business.”

And today, CNBC is reporting that the directors of the company agree with Starboard and will stop the spinoff and perhaps consider other options. It’s not clear that a sale is the aim or if they plan to give Mayer more time for her turnaround, but two things are crystal clear if the spinoff is abandoned.

This is a board that is making its decisions based on taxes — which makes sense given the billions at stake here — and with zero confidence that there are any really innovative things to be done with Yahoo to turn it around.

Maybe not, but it is entirely the board members’ fault for making themselves prone to financial machinations more than anything else. And Mayer’s for blowing what was a golden opportunity when she arrived.

They deserve it because, most of all, this is a board that must be very scared that it would lose a proxy fight that Starboard and its voluble head, Jeff Smith, was preparing to wage against it. Smith has gained a lot of credibility since he first went after AOL, and the prospect of him getting board seats at Yahoo perhaps seemed inevitable to directors, who surely did not want to be subject to an ugly public war about their performance.

Thus, Yahoo’s board is trading tax savings for safety — except it’s not safe at all.

As I noted in a podcast I did last week about Yahoo, no spinoff puts it into play in a very significant way, even if the board does not say so. And none of it has anything to do with creating great products for consumers, which was the only thing that would have saved Yahoo in the first place.

Score one for the accountants.

This article originally appeared on

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