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Yahoo! Inc. (NASDAQ:YHOO) is reconsidering its strategy for its internet core business after an activist shareholder demanded significant changes in the company.

The management of the technology company is now contemplation on selling its internet core business instead of its previously announced plan to spin it off into a separate, publicly-traded company, according to Bloomberg based on information from people familiar with the matter.

The sources indicated that Yahoo hasn’t made a final decision to sell its internet core business. The company hasn’t made a move to contact potential buyers or engage the services of a bank to help in the process.

Last month, the Board of Directors of Yahoo announced its decision to suspend the proposed spinoff of its remaining stake in Alibaba Group Holding Ltd (NYSE:BABA) and to evaluate alternative transactions structures to separate its holdings in the Chinese e-commerce giant.

Yahoo reverse spinoff plan

Yahoo Chairman Maynard Webb explained that their decision to suspend the Alibaba spinoff was due to concerns over tax risks. According to him, the Board will focus its efforts on the reverse spinoff plan for the Alibaba stake. Under the reverse spinoff, Yahoo will transfer the Alibaba stake including some of its assets and liabilities into a newly formed company.

During a conference call last month, Webb stated, “There is no determination by the Board to sell the company or any part of it. We believe that the business remains very undervalued, and we are focused on realizing and unlocking that value, both with separating our assets the way we are talking about, and also working on transforming our operational businesses.”

Starboard Value demands changes

Starboard Value recently sent a letter to the Board and management of Yahoo expressing its frustration with the company’s performance. The activist shareholder demanded changes in the leadership, strategy and execution of the company.

Starboard Value CEO Jeffrey Smith emphasized that Yahoo’s core internet business continues to deliver poor performance. According to him, there are interested and credible buyers for the company core internet business.

The activist investor also emphasized that the Yahoo Stub (company’s market value excluding its stake in Alibaba) was trading near zero.  Smith said the company could separate its stake in Alibaba and Yahoo Japan by selling and spinning off its internet core business.

Furthermore, Smith said shareholders have no confidence in the Board and management of Yahoo to execute the proposed separation of the company’s assets or improve the performance its internet core business.  He said a leadership and strategy change is necessary to achieve such objectives.