For Yahoo, the question is what to do with $40 billion in leftovers

Yahoo has agreed to sell the bulk of what people know as Yahoo — its mail services, its news sites, the Tumblr social network — to Verizon for nearly $5 billion.

So what is left? A lot of more financially valuable pieces that Yahoo has yet to figure out what to do with.

Assuming shareholders and regulators bless the sale of the core Yahoo businesses to Verizon, what will stay are a 15 percent stake in the Alibaba Group, the Chinese internet giant; a 35.5 percent stake in Yahoo’s Japanese affiliate; the company’s cash; and a collection of noncore patents that will eventually be sold off.

The total value of RemainCo, as company officials refer to the rump: more than $40 billion.

But the sticking point for Yahoo, as was the case in the past, is the fact that selling the Alibaba stake in particular will generate a huge tax bill. That is why Yahoo had previously explored permutations of a spinout of its core business, leaving the Alibaba stake in a separate publicly traded company of some kind.

Monday’s deal effectively does that, although it also leaves behind the Yahoo Japan stake and a few other assets. Where does that leave the company?

Thomas McInerney, the Yahoo board member who led the company’s sales process, said on a call with investors that RemainCo would essentially exist as a publicly traded investment company “with no current intent.”

Of the remaining assets, the Alibaba stake is the trickiest one to manage. Yahoo would incur an enormous tax bill if it sold the stake outright — to the tune of billions of dollars — since its initial investment in the Chinese e-commerce titan has skyrocketed in value.

Yahoo’s previous attempts at dealing with the Alibaba stake were aimed at minimizing the tax bill. But the Internal Revenue Service dealt a blow to the company’s plans last year when it refused to deem such a move tax-free.

It is possible for a buyer to come in and purchase the Alibaba stake without incurring a huge tax bill, though Yahoo executives on Monday did not enumerate all the possibilities.

McInerney did raise one potential situation, however: Alibaba itself buying RemainCo, but essentially keeping it whole and not reabsorbing the shares. RemainCo would become what the director referred to as a “hook stock.” It is not quite clear that either side would be interested in pursuing such a transaction.

Other parts of RemainCo are much easier to deal with. The Yahoo Japan stake is not subject to as nearly a contentious tax bill as the Alibaba holdings, though for the moment the rump company will hold on to that stake. (The majority owner of Yahoo Japan, SoftBank, has the right of first refusal if RemainCo decides to sell those shares.)

And McInerney said the rump company would return virtually all of the remaining cash and continue to work on selling the patents.
In case investors and analysts did not grasp the message, he added during the call: “We’re not intending to make new investments with the cash out of RemainCo. The intent is to return it.”