Are you ready for a big fight over Yahoo’s control? Activist investor Starboard Value LP is really unhappy about Yahoo’s current state and wants everyone to know about it. In an open letter to shareholders, the activist hedge fund is saying that many things are broken at Yahoo right now and the investment firm could fix everything by taking over the company’s entire board.
In order to do this, Starboard announced nine candidates who are running for the board of Yahoo. If investors agree, it would be an unprecedented move with a single activist investor controlling the entire board of a company that is currently worth around $33 billion. This move could happen at the annual shareholder meeting in June 2016 or before.
So why does Starboard want to take over Yahoo? Starboard is really unhappy with the current board and management team at Yahoo, saying that they are not maximizing the value for Yahoo’s shareholders.
In other words, it would get tough for Marissa Mayer and her team to stay at the helm of Yahoo with such an aggressive board. Starboard currently owns 1.7 percent of Yahoo, representing around $570 million.
“Unfortunately, as we have outlined in previous letters, we have been extremely disappointed with Yahoo’s dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability and oversight by the Board. We believe the Board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders.”
This is war, and it’s going to be interesting to see whether Starboard’s plan is going to go through. The current board is not going to leave the room without a fight.
But what would Starboard do differently? According to the very beginning of the letter, it seems like the investment firm is open to all options (“operational turnaround plan, separation, or sale of assets”). But the tone changes quite a lot as you read down.
In particular, Starboard is saying that the sale process is broken. While Yahoo signaled that its core business (Yahoo without Yahoo’s stake in Alibaba and Yahoo Japan) is for sale, the board and management team are dragging their feet on this front.
“Yahoo is only now beginning to engage with prospective bidders on NDAs and appears to be demanding onerous and off-market terms. Further, it has been well-reported that Verizon, normally a conservative company, has utilized every public appearance to state its interest in Yahoo’s Core Business. Yet, as recently as March 9th, Verizon representatives stated that they have not actually received any information from Yahoo with which to consider a bid.”
This isn’t the first time we’ve heard that Verizon was interested by a Yahoo acquisition. AOL CEO Tim Armstrong might even be the person in charge of exploring this deal (AOL is TechCrunch’s parent company, and Verizon is AOL’s parent company).
And yet, according to Starboard, these discussions are going nowhere. Verizon is shouting “Hey! HEY!!! CAN WE BUY YOU???” And Yahoo is looking the other way.
From the outside, it looks like the board is confident that Marissa Mayer is the right person to lead Yahoo. And it looks like Marissa Mayer still thinks she can turn the company around. She recently said that a turnaround could take five to seven years.
But it’s hard to see Starboard sitting around for five years without doing anything.
“This atrocious performance is even more appalling when you consider the billions of dollars spent in recent years on what has proven to be wasteful acquisitions and research and development expenditures. As an example, Yahoo has spent over $2.3 billion on acquisitions since 2012 and has already written down $1.2 billion relating to those acquisitions.”
A few years ago, activist investor Dan Loeb managed to grab three seats on Yahoo’s board. He then hired Marissa Mayer as CEO of the company. And now, another activist investor could shake up the company once again.
The King is dead, long live The King!