Coverage: Starboard Value plans to dismantle Yahoo’s board

Marissa Mayer is having a tough Thursday, upon the revelation that hedge fund Starboard Value LP was working to remove the entire Yahoo Inc. board of directors, putting the company at risk of a difficult proxy fight.

David Benoit and Douglas Macmillan of The Wall Street Journal first reported the day’s news:

Hedge fund Starboard Value LP is seeking to remove the entire board of Yahoo Inc., setting the stage for a battle over the future of the faded Web giant.

The activist investor plans to announce Thursday morning that it will nominate nine directors to Yahoo’s board, according to a letter reviewed by The Wall Street Journal, making good on a threat made this year that it would seek to shake up the board if it felt the directors weren’t making changes fast enough.

Starboard’s letter says the board and management have continually failed to live up to their own promises, and shouldn’t be trusted with the decision on whether or not Yahoo should remain an independent company.

A Yahoo spokeswoman declined to comment on the Starboard proposal.

Starboard’s move adds pressure to Yahoo and Chief Executive Marissa Mayer as they attempt to turn around or sell the beleaguered company. Yahoo’s board has already launched a sales process for its core business, while Ms. Mayer is seeking to reignite its results through costs cuts and improved focus on key areas including search and content.

Should Starboard prevail, in a vote likely to be held a few months from now, it could increase the odds of a sale and a dismantling of the company, which owns valuable stakes in China’s Alibaba Group Holding Ltd. and Yahoo Japan.

In a quick brief Thursday morning, Bloomberg reported that Starboard released a list of nine potential nominees:

Yahoo! Inc. investor Starboard Value LP nominated nine directors to the struggling Web portal’s board, which it contends has been mismanaged under Chief Executive Officer Marissa Mayer.

Alice Truong of Quartz laid out what another activist investor thought of Starboard’s bold move:

According to a letter WSJ reviewed, Starboard blames Yahoo’s management and board of directors for failing to live up to their promises. Starboard had pressured Yahoo to abandon the spinoff of its stake in Alibaba when it became unclear if the transaction would go through tax-free. Starboard is also leading the charge in pushing Yahoo to sell the core business. In a Jan. 6 letter, it warned: “If the Board is unwilling to accept the need for significant change, than an election contest may well be needed.”

Another activist investor, Eric Jackson at SpringOwl Asset Management, believes Starboard has an agenda. Jackson in December presented a 99-slide deck laying out a detailed plan for turning around Yahoo that included cutting costs, staff, and CEO Marissa Mayer. In the presentation, he said that Starboard, having acquired half of its $200 million stake when the stock was low, has an incentive to see a quick sale. SpringOwl is not a major shareholder, but Jackson has also threatened a proxy fight. The deadline to file is March 26.

If all this sounds a bit familiar, perhaps it’s because Dan Loeb’s Third Point waged a proxy battle in 2012 that got him and two allies on the board. In that case, Loeb also played a key role in hiring Mayer.

Reuters explained how Yahoo executives and Starboard Value leaders previously met to try and avoid a proxy fight:

Starboard has been pushing for changes at Yahoo since 2014, asking it to separate its Asian assets and sell the core business.

Reuters reported on March 4 that Yahoo executives would meet this month with Starboard Value. The two sides will discuss whether they can come to an agreement in order to avoid a proxy fight for control of Yahoo.

Shareholders have until March 26 to submit nominations for board members to be elected at Yahoo’s annual meeting this spring. Starboard has said it is willing to launch a proxy fight with its own nominations.

Telecommunications company Verizon Communications Inc and publisher Time Inc. are among the companies expected to bid for Yahoo’s core business, while some private equity firms are expected to team up to make offers.

Representatives at Yahoo and Starboard Value could not be reached for comment.