NEW YORK (TheStreet) --Speculation has risen that Yahoo (YHOO) could become a takeover target after the company announced that it plans to spin-off its remaining stake in Alibaba (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report in a tax-free transaction.

ANALYST OPINION: Investors are failing to realize that Yahoo could be acquired this year, Laura Martin of research firm Needham stated. Any entity that buys Yahoo before it spins off its Alibaba assets would be getting Yahoo's 16% stake in the Chinese e-commerce company at a discount, Martin believes. That's because after Alibaba's shares are spun off, the IRS could nullify the tax-free nature of the transaction if the spun-off company does not remain independent for at least two years, the analyst stated. Additionally, any company that wants to buy Alibaba's shares in the open market would have to pay a premium to do so, the analyst believes. Also, any company that acquires Yahoo would be getting the company's core business for free, added Martin. Noting that Yahoo is slated to spin-off its stake in Alibaba in September, the analyst wrote that any company that wants to exploit all of these advantages would have to act before then. She kept a $55 price target and Buy rating on Yahoo. In a separate note to investors today, Citigroup suggested that Yahoo's stock is undervalued after the shares dropped yesterday and today in response to a decline in Alibaba's shares. At current levels, Yahoo's stock is valuing the company's core businesses at negative $1B, the firm stated, after making certain assumptions about the value of the spun-off Alibaba stake and the value of Yahoo's stake in Yahoo Japan. Alibaba's shares would have to fall below $74 for Yahoo's stock to drop further, all else being equal, the firm estimated. Citi kept a Buy rating on Yahoo.

WHAT'S NOTABLE: Alibaba earlier today reported fourth quarter earnings per share of 81c, excluding certain items, versus analysts' consensus estimate of 73c. The e-commerce giant's revenue came in at $4.22B, below expectations for $4.45B. Its gross market volume transacted on China retail marketplaces in the quarter was $127B, an increase of 49% versus the same period a year earlier. Of note, Stifel downgraded Alibaba to Hold from Buy following the company's Q4 results.

PRICE ACTION: In late morning trading, Yahoo fell about 7% to $43.28 and Alibaba shares dropped 10% to $88.70.

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Reporting by Larry Ramer.

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