Updated from 4:17 p.m. to include information from Bloomberg article.
Fifteen minutes before the close of trading, shares were hovering around the flat line before falling suddenly, despite an apparent lack of news. Conversely, shares of Alibaba (BABA), in which Yahoo! owns a significant stake, shot up.
Yahoo! closed down 7.6% to end at $40.98, hitting an intra-day low of $39.12, before bouncing back slightly.
Bloomberg reported the decline is related to an IRS ruling on tax-free spinoffs. Yahoo! has previously said it intends to spin off its remaining stake in Alibaba to shareholders by the end of the year.
According to Tax Notes, (see I.R.S. Announces Spinoff Ruling Pause; Yahoo Implicated, by Amy Elliott)— Aron Pinson (@MicroFundy) May 19, 2015
While not an official cause, this pause may have caused an unwinding in a pair trade, in which market participants own Yahoo! ahead of the spinoff and short Alibaba only to reverse that trade once the details are finalized.
@Chris_Ciaccia The spinoff arb is to buy YHOO, and sell BABA short in anticipation of receiving it on spinoff.— Ivan the K ™ (@IvanTheK) May 19, 2015
We've reached out to Yahoo! and the New York Stock Exchange to see if they have any comment and will update if and when we hear back.