Yahoo will not move forward with Alibaba spinoff: Sources

Yahoo is also considering what to do with its stake in Yahoo Japan, according to the CNBC report. Yahoo owns 35 percent of that company, worth about USD 24 billion at current exchange rates.

The CNBC report on Tuesday, which cited unnamed sources, did not disclose a possible sale price for the core Internet unit. Analysts and bankers have estimated it could fetch between USD 2 billion and USD 8 billion, with many seeing USD 4 billion as the likely price, but some regard its value as less than zero.

After such a sale, all that would be left, essentially, is the Alibaba and Yahoo Japan stakes.

“This is absolutely a step in the right direction," said Neil Doshi, an analyst at Mizuho Securities USA. "We’d much rather see Yahoo either spinoff or potentially sell the core and have a tax liability on a smaller piece than have it on the larger Alibaba piece.”

Private equity, media and Internet firms are potential buyers. On Monday, the Chief Financial Officer of Verizon Communications Inc said the No. 1 US wireless carrier could look at buying Yahoo's core business, but made no mention of a price.

The latest report came after a three-day meeting of Yahoo's board of directors last week, which concluded on Friday. Yahoo has faced pressure from activist investor Starboard Value LP to sell the core business rather than proceed with the planned spin-off of its stake in Alibaba, which could trigger large tax payments.

In January, announcing the Alibaba plan, Mayer said the deal would be tax-free, but the US Internal Revenue Service has declined to verify that. Taxes related to the spin-off could leave Yahoo shareholders on the hook for USD 12 billion.

"This was really a really good PR move by Starboard as the spinoff was highly unlikely anyway given the tax implications and they knew they could claim victory once Yahoo made the official announcement,” said Jim Osman of The Edge Consulting Group, a research firm that advises activist hedge funds.

The sale of the company's core Internet business would effectively end Yahoo's role as a key US tech company, and be a recognition that Mayer's efforts to revive the businesses have yielded few results.

But an analyst said that was not necessarily a defeat for Mayer.

“This is a potential win-win for Marissa," said Doshi. "She can sell the company and have a graceful exit or she can be part of a larger company or private equity team and still continue to run the business."