Yahoo Faces Proxy Fight, Starboard Value Announces New Board Slate
Charging the current board of Yahoo ( YHOO ) with failing to deliver results for its shareholders, activist investor Starboard Value announced Thursday that it wants to sweep out all of the ailing Web company’s nine directors and replace them with its own slate during Yahoo’s 2016 shareholder meeting. “The management team and board of Yahoo have repeatedly failed shareholders. Time and again, operating results have been decidedly negative and materially worse than management’s guidance and external expectations,” said an open letter to Yahoo shareholders from Starboard Value managing member Jeffrey Smith, one of Starboard’s Yahoo board nominees. “In fact, even after management publicly stated that EBITDA had troughed in the third quarter of 2014 and would grow going forward, EBITDA (earnings before interest, taxes, depreciation and amortization) actually fell 47% year-over-year.” Smith’s letter indicates that Starboard also doesn’t trust Yahoo’s current directors to perform in terms of either the strategic review of Yahoo’s core search and display ad business or with the eventual fate of Yahoo’s 15% stake in China e-commerce giant Alibaba Group ( BABA ) and its holdings in Yahoo Japan. “There are good reasons for shareholders to be highly concerned about the current strategic review process,” wrote Smith. “These are highly complex issues with many potential options, some of which will likely involve series conflicts of interest for management and certain board members.” Smith also said that despite “what appears to be strong interest from large strategic and financial buyers,” including Verizon Communications ( VZ ), in acquiring the core business, nearly two months have gone by “and it seems little progress has been made.” The company has hired three investment banks to evaluate potential bids. Starboard, which owns 1.7% of Yahoo’s outstanding shares, said that while Yahoo had not yet scheduled its annual shareholder meeting, the event typically occurs in late June. Yahoo said in a statement Thursday that one of its directors, company co-founder David Filo, “may be deemed to own approximately 7.5% of the company’s common stock.” The remaining board members do not own “in excess of 1% of the company’s common stock,” said Yahoo. Yahoo said it would review Starboard’s proposed director nominees and “respond in due course.” Yahoo This Month Appointed Two New Directors This month, Yahoo appointed two members to its board, Catherine Friedman, a former managing director at Morgan Stanley ( MS ), and Eric Brandt, a former chief financial officer of Broadcom ( AVGO ). Yahoo’s revenue growth has stalled for nearly a decade as ad dollars continue to slip away to rivals including Facebook ( FB ), Netflix ( NFLX ), Alphabet ( GOOGL )-unit Google, and others that include high-profile startups Snapchat and Pinterest. “We see this is a positive development for Yahoo shares, as we see Starboard continuing to push for strategic alternatives and maximum value for the company and its assets,” said S&P Global Market Intelligence analyst Scott Kessler in a research note Thursday. “This is gearing up to be an epic proxy fight, and we believe that this will create a significant overhang on Yahoo shares,” said Mizuho analyst Neil Doshi in an industry note on Thursday. “ It’s unusual to see an investor try to replace an entire board, but this clearly highlights to us that Starboard does not trust any of the existing board members will do what needs to be done to create value for Yahoo shareholders. “If elected, we believe the new slate of directors brings a larger breadth of industry experience to the table and will be much more critical of Yahoo’s current management team.” Excluding Yahoo CEO Marissa Mayer, Doshi said just three of the other eight current directors have backgrounds in technology and media, “vs. seven of eight for Starboard’s nominees, excluding Jeffrey Smith, Starboard’s CEO and CIO.” Yahoo Pins Its Hopes On Mobile, Other ‘Mavens’ Yahoo owns about 385 million Alibaba shares, about 15%. After an initial plan to spin off its Alibaba shares, Yahoo reversed course following tax concerns. Yahoo stock was flat in early afternoon trading in the stock market today , near 35. Yahoo stock is down more than 20% over the past 12 months, but had edged up 2% this year. Alibaba stock was down 1%, near 75, Thursday afternoon. Yahoo is cutting 15% of its workforce — roughly 1,600 jobs — and selling non-core divisions and assets, such as patents and real estate, as part of a plan to return the company to what it forecasts as modest-though-accelerating growth in 2017 and 2018. The company’s turnaround plan includes continued investment in what CEO Mayer calls “Mavens,” referring to Yahoo’s mobile, video, native and social businesses, where its ad revenue is growing. In Q4, Yahoo said earnings excluding items plunged 57% from the year-earlier quarter to 13 cents a share, meeting views. Revenue minus traffic-acquisition costs — what the company pays other sites to carry its ads — fell 15% to $1 billion, beating views. For Q1, Yahoo is guiding total revenue at $1.005 billion to $1.09 billion, down 18% to down 11%.
