IRS Spin-Off Announcement General But Likely Motivated by Yahoo! (YHOO), Says BofA

BofA/Merrill Lynch maintained a Buy rating on Yahoo! (NASDAQ: YHOO) but trimmed its price target to $56.00 (from $58.00). Shares of Yahoo! dropped sharply Tuesday after an IRS official said they are considering changes to rules for tax-free spin-offs. The change would potentially effect Yahoo!’s planed Alibaba (NYSE: BABA) spin.

Yahoo said the “IRS’s statement is not specific to Yahoo’s planned Q4 2015 spin-off of its remaining stake in Alibaba Group and Yahoo Small Business, reflects no change in applicable law, and does not affect previously filed ruling requests.”

While the announcement may be a general one, analyst Justin Post thinks it was likely motivated by the potential Alibaba transaction and the attention in garnered.

Despite the setback, Post sees an overall positive risk-reward for Yahoo, with a downside case of $36 and an upside case of $56.

For an analyst ratings summary and ratings history on Yahoo! click here. For more ratings news on Yahoo! click here.

Shares of Yahoo! closed at $40.98 yesterday.

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