When it’s on its way to no longer being a company, period.

 

Once upon a time, Yahoo was the leader in Internet search, but now as it looks more like roadkill with Google’s and Facebook’s tire tracks over it. As a result, it is considering selling its Internet business, which would make it a…uh…different company.

Two major questions that come to mind are: 1. Why? And 2. What will this new Yahoo be?

The first question has an answer: an activist investor, in this case, New York hedge fund Starboard Value.

Starboard has been a vocal critic of Yahoo CEO Marissa Mayer, believing her tenure has been an abject failure to Yahoo investors, as net revenue has fallen despite industry-wide investment in digital marketing. Consequently, the fund is working to force her to accept defeat at the hands of rivals Facebook and her former employer, Google, and abandon what has been the company’s core business since its inception.

 

This Starboard-Mayer situation is certainly not the first time an activist investor and a CEO have gone toe-to-toe on business strategy, but there is frequently some sort of fight. In this case, with three and a half years of declining revenues, Mayer doesn’t really have a leg to stand on.

Further complicating the issue is the alternative to spinning out the Internet business—potentially paying astronomical tax bills in two different countries. Coincidentally, this also begins the discussion of the second (and unanswerable) question of what would become of Yahoo.

Yahoo bought a stake in Chinese e-commerce giant Alibaba for $1 billion in 2005—an outrageous sum of money at that point in time. Arbitrary nature of tech valuations aside, Alibaba went public last year with the largest tech IPO in history. Great news for Yahoo, right?

Wrong.

The stock has basically declined in value over the last year, and while Yahoo is still looking at a stake worth a bunch of money, it’s also looking at giant tax bills from both the U.S. and China if it tries to capitalize on that stake by spinning it out.

Initially, Mayer had thought that she and Yahoo might dodge the U.S. tax, which by some estimates, would total more than half of the value of its stake. Then the company might have to pay Chinese taxes on top of it.

Starboard’s stance is that Yahoo needs to cut its losses and dump its Internet and display ad business, much the way AOL did when it sold to Verizon earlier this year. Its demand letter alluded to a market for the business but didn’t elaborate.

Regardless, though, the consensus among those covering tech seems to be that the clock is ticking on Mayer, and this decision is likely to make or break her tenure.