Internet firm Yahoo (NASDAQ: YHOO) is said to be in talks to sell its 35 percent stake in Yahoo Japan, sending its shares up 3 percent Wednesday.

Shares of Yahoo closed Wednesday's trading session at $16.63, up 53 cents, or 3.29 percent, on Nasdaq. In the pre-market hours Thursday, the stock is up about 2 percent, 26 cents, to trade at $16.89.

A deal to transfer Yahoo's 35 percent stake in Yahoo Japan to Softbank Corp, which already controls 42 percent of the unit, could come within a few weeks, Reuters reported citing people with knowledge of the discussions.

However, Softbank denied the report and said it does not intend to acquire Yahoo Japan shares. The move is expected to generate as much as $8 billion and give Yahoo the necessary cash infusion to fight against arch rival Google and Facebook.

Following are the possible ways for Yahoo to exit Japanese investment.

* Sale of Yahoo's stake in Yahoo Japan, which is expected to fetch as much as $8 billion.

* Yahoo comes out with a tracking stock for Yahoo Japan, possibly a U.S. listed ADR

Caris analyst Sandeep Aggarwal said the tracking stock will provide higher market efficiencies to the shares of Yahoo in the U.S. But, the sale of Yahoo Japan stake can give up to 35 percent boost to the implied value of this stake in Yahoo's shares as the Street will no longer apply illiquidity discount of up to 25 percent.

Aggarwal added that perhaps Yahoo can bring the cash back into the U.S. with no or low tax incidence (10 percent to 15 percent vs. 30 percent to 35 percent).

Jefferies analyst Youssef Squali said Yahoo appears to be negotiating a way to monetize its 35 percent stake in Yahoo Japan tax efficiently.

We value YHOO's stake in Yahoo Japan at about $8 billion (pre-tax), and believe progress in unlocking this value would help drive YHOO shares higher, Squali wrote in a note to clients.

Since Softbank has denied buying Yahoo Japan shares, Squali said it is more likely that Yahoo eventually spins out its stake in the form of a tracking stock.

Tracking stock, also known as designer stock, is a common stock issued by a parent company that tracks the performance of a particular division without having claim on the assets of the division or the parent company.

When a parent company issues a tracking stock, all revenues and expenses of the applicable division are separated from the parent company's financial statements and bound to the tracking stock. Oftentimes, this is done to separate a subsidiary's high-growth division from a larger parent company that is presenting losses. The parent company and its shareholders, however, still control the operations of the subsidiary.