Coverage: Yahoo faces potential proxy fight

Things at Yahoo just got a bit hazier, with Starboard Value’s Jeffery Smith threatening a proxy battle against the struggling company.

In a letter to the company’s board Wednesday, Smith warned that he and his firm were ready for battle to have CEO Marissa Mayer stripped of her title along with several unspecified board members, writing the company was not only in need of a management restructure but also a stronger turnaround strategy.

Fred Imbert of CNBC had the day’s news:

It’s time for Yahoo and CEO Marissa Mayer to face the music and recognize their turnaround approach isn’t working, Starboard Value’s Jeffrey Smith said Wednesday.

“Despite over three years of effort and billions spent on acquisitions, the management team that was hired to turn around the Core Business has failed to produce acceptable results, in turn, causing massive declines in profitability and cash flow,” the hedge fund’s managing partner said in a letter to Yahoo’s board.

“It appears that investors have lost all confidence in management and the Board [of directors]. As of Tuesday’s close, the value of the ‘Yahoo Stub’ (defined as Yahoo’s market value less the value of its shares in Alibaba) has collapsed and is currently trading near zero,” the activist investor added.

Smith also said Yahoo needs to make significant changes to its management team, board composition, strategy and execution.

Yahoo later said in a statement: “Yahoo is in the midst of a multi-year transformation. We attract more than a billion people every month and we’ve built a profitable, billion dollar business.”

“We will share additional plans for a more focused Yahoo on or before our fourth quarter earnings call. Our board and management team engage in and maintain regular, open dialogue with all our shareholders, and consistently strive to deliver and to maximize shareholder value.”

Douglas Macmillan and David Benoit of The Wall Street Journal discussed the company already uncertain future:

Uncertainty around Yahoo’s future has already dragged down morale, as dozens of executives who had been instrumental to Ms. Mayer’s turnaround plan have left in recent months for jobs elsewhere.

Pressure from investors could also make the board more open to a sale of the whole company or its core Internet business. Maynard Webb, Yahoo’s chairman, told investors last month that the board hasn’t approved a sale process for its Internet business. But in a sign that many observers took as a signal that Yahoo is open to a sale, Mr. Webb said then that “the board has a fiduciary duty to entertain any offers.”

A range of potential suitors have discussed an acquisition of Yahoo with bankers in recent weeks, though no formal talks have been held, according to people familiar with the matter. Verizon Communications Inc. has publicly indicated it would be interested in exploring a purchase, and private-equity firms including TPG Capital have shown interest in acquiring parts or all of the business, a person familiar with the matter said.

If Starboard moves forward with a proxy fight, it said it would attempt the rare feat of replacing a majority of the board. Large investors and proxy advisory firms like Institutional Shareholder Services Inc. require a high level of dysfunction to support such a change, as opposed to one or two seats. Starboard previously accomplished that feat in 2014, when it won a vote that replaced the entire 12-member board of Darden Restaurants Inc., the owner of Olive Garden.

Michael J. de la Merced of The New York Times explained this is not the company’s first time dealing with a potential proxy fight:

The hedge fund’s threat comes at the beginning of proxy season for corporate America, when shareholder activists can formally begin challenges for board control. According to Yahoo’s shareholder materials, investors can nominate their own director candidates from Feb. 25 to March 26.

Yahoo has faced challenges to its board before. Nearly four years ago, the hedge fund magnate Daniel S. Loeb fought for three director seats in a bitter public brawl — and engineered the ouster of Scott Thompson, the company’s chief executive at the time, by highlighting apparent résumé-padding by Mr. Thompson.

Mr. Loeb eventually won three seats in a settlement with Yahoo, and later helped bring in Ms. Mayer as chief executive.

And in 2008, the veteran financier Carl C. Icahn took a run at the company’s board, dismayed by its reluctance to sell itself to Microsoft. He eventually secured three seats in a compromise with Yahoo.

It is unclear how Starboard, which reported owning less than 0.8 percent of Yahoo’s shares as of Sept. 30, would fare. But the hedge fund is counting on widespread investor dissatisfaction with the failure of Ms. Mayer and the company’s board to turn around Yahoo’s fortunes.

Still, the reaction of investors on Wednesday was muted, with shares of Yahoo closing slightly down, at $32.16.