As Yahoo Turns: Shareholder mutiny begins another soap opera
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SAN FRANCISCO — Shareholder rebellions at Yahoo are becoming like presidential elections — they are happening every four years.
Activist investor Starboard Value launched a widely anticipated mutiny Thursday in a letter announcing its intent to overthrow Yahoo CEO Marissa Mayer and the rest of the company’s board. It marks the opening salvo in a battle for control of Yahoo Inc. that could drag into the summer.
This is the third attempted coup at Yahoo since 2008, all led by different shareholders fed up with different management teams’ fruitless attempts to turn around the company.
The two previous uprisings in 2008 and 2012 culminated in Yahoo giving board seats to the dissident shareholders. The unrest also contributed to the departures of two of Yahoo’s previous CEOs, company co-founder Jerry Yang and Scott Thompson.
Now, Mayer’s job is in jeopardy as a prolonged revenue slump at Yahoo deepens nearly four years into her reign as CEO.
“We have been extremely disappointed with Yahoo’s dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability,” Starboard CEO Jeffrey Smith wrote in Thursday’s letter.
As part of a process known as a proxy fight, Starboard nominated nine alternative candidates to oppose Mayer and Yahoo’s other current directors at the company’s annual shareholder meeting in June.
The list of alternatives includes Smith, who has been publicly skewering Yahoo for the past 18 months in an attempt to pressure Mayer into taking drastic steps that he believes will boost the company’s stock price.
Starboard, which owns a 1.7 percent stake in Yahoo, engineered a 2014 proxy battle that tossed out the entire board of Darden Restaurants Inc., the owner of Olive Garden.
In a statement, Yahoo said it would review Starboard’s nominees and respond “in due course.” The Sunnyvale, California, company snubbed Smith’s request for representation on its board two weeks ago when it appointed two directors with no ties to Starboard.
The tussle with Starboard comes at a pivotal time for Yahoo. The current board is currently wrestling with a decision to sell Yahoo’s Internet operations to a list of bidders that could include Verizon Communications, AT&T Inc. and Comcast Corp., or stick to Mayer’s latest plan to revive the company.
Mayer is in the process of laying off 15 percent of Yahoo’s workforce and closing unprofitable services, while trying to pull off a complicated maneuver that would spin off Yahoo’s Internet operations into a newly created company.
If the split is successful, Yahoo would then be left with highly prized stakes in China’s Alibaba Group and Yahoo Japan. Those holdings are the main reason that Yahoo’s stock has more than doubled since the company hired Mayer away from Google in July 2012.
But the stock has dropped by about 30 percent in the past 15 months, driven by a downturn in Alibaba’s shares as well as a loss of investor confidence in Mayer.
“I can’t believe she is still there,” said Phil Davis, CEO of PSW Investments, which sold its holdings in Yahoo in 2013. “They just make bad decision after bad decision over and over again. You almost think anybody else would be an improvement.”
After subtracting its ad commissions, Yahoo’s annual revenue has fallen from $5.4 billion in 2008 to $4.1 billion last year with another decline projected for this year. The erosion has occurred even though advertisers have been steadily boosting their digital spending, but most of that money has been flowing to Google and Facebook.
While continuing to back Mayer, Yahoo’s board last month hired three investment banks to help evaluate potential bidders. Analysts have estimated that Yahoo’s Internet operations, including popular email, sports and finance services, could fetch anywhere from $4 billion to $8 billion in an auction.
BGC Financial analyst Colin Gillis expects Starboard to push for the sale with the backing of most Yahoo shareholders.
“A lot of people want to see Yahoo’s value to be unlocked via a sale, but this board seems to lack some urgency in getting that done,” Gillis said. “This (proxy fight) should help keep the board honest.”