Coverage of Loeb leaving Yahoo board

Daniel Loeb, the activist hedge fund manager, is selling the majority of his stake in Yahoo and stepping down from the board of directors. This follows disappointing earnings and has many wondering just what is going on inside the troubled Internet firm.

The Wall Street Journal story ran with the online headline “Loeb’s Exit From the Board Fuels Concerns About Yahoo”:

A chief architect of the new Yahoo Inc. is out, fanning concerns about the core strength of the troubled Internet business.

Daniel S. Loeb, chief executive of hedge fund Third Point LLC, said on Monday that he is leaving Yahoo’s board and unloading the bulk of the hedge fund’s shares in the company.

Mr. Loeb hashed out a deal over the weekend with Yahoo to sell two-thirds of the fund’s stake, or 40 million shares, at $29.11 apiece, or about $1.2 billion.

Third Point still owns 20 million shares in Yahoo. But with the sale, which pushes the stake below 2%, Mr. Loeb and two other directors originally nominated by his hedge fund must resign from the board after a little more than a year.

During his tenure as activist shareholder and later board member, Mr. Loeb played a very visible role: pushing for the ouster of former Yahoo CEO Scott Thompson, reorganizing the board and hiring its new CEO, Marissa Mayer.

Since Mr. Loeb began buying shares of Yahoo in 2011 at roughly $11 a share, Yahoo’s stock has nearly tripled.

But the decision by one of Wall Street’s most successful hedge- fund managers to sell the bulk of his Yahoo holdings troubled some Yahoo investors, who are still parsing last week’s mixed earnings report, which showed a 7% drop in the company’s revenue.

The Associated Press story lead with Loeb’s profit and pointed out that his strategy of creating shareholder value paid off for his investors:

Activist investor Dan Loeb is leaving Yahoo’s board with a windfall after a 15-month stint that vindicated his crusade to shake up the long-slumping company under new leadership.

Yahoo Inc. is spending $1.16 billion to buy back 40 million of the shares that Loeb’s hedge fund, Third Point LLC, began buying in 2011 around the same time Yahoo was ushering out Carol Bartz as its CEO.

Third Point is being paid $29.11 per share, more than double the average of $13.77 per share that it paid while accumulating a 5.8 percent stake in Yahoo. Based on that price, Loeb and his New York hedge fund will realize a pretax gain of about $610 million from the sale.

Loeb, who already has an estimated fortune of $1.5 billion, will retain a stake of less than 2 percent in Yahoo.

Bloomberg reported Loeb is leaving with a $655 million profit and pointed out Third Point’s better than average returns:

Third Point returned 12.6 percent in the first half of the year, among the better performers in the hedge-fund industry, which on average returned 3.6 percent, according to Hedge Fund Research Inc. Aside from Yahoo, his top performers in the first quarter were bets on Japanese equities and the yen, and long positions in American International Group Inc., Virgin Media and Herbalife Ltd. (HLF), according to his first quarter letter to investors.

Loeb reported owning 5.2 percent of Yahoo in September 2011, when he urged the board to resign, saying directors erred in spurning a $44 billion takeover bid by Microsoft Corp. and hired a chief executive officer who wasn’t up for the job. At that time, he had purchased about 45 million shares at an average price of $12.72.

He became a director in May 2012 in a board shakeup tied to the ouster of former Yahoo Chief Executive Officer Scott Thompson over a failure to correct errors in his credentials. Third Point had been locked in a dispute with Yahoo (YHOO) about its management, faulting Thompson for cutting jobs before he articulated a complete turnaround strategy after the company failed to accept the Microsoft bid.

At that time, Loeb had built his stake to 70.5 million shares. Third Point still owns 20 million shares, or about 1.8 percent, in Yahoo after the stake sale announced today, valued at about $564 million.

Reuters reported that some investors may follow Loeb’s lead in selling stakes in Yahoo:

Shares in Yahoo, which are trading at their highest levels in more than five years, slid 4.3 percent to roughly $27.86 in the afternoon.

Loeb’s move may prompt other shareholders to similarly re-evaluate their investment, said JMP Securities analyst Ronald Josey.

“Probably a lot of investors are saying, ‘We had a pretty good run here, it makes sense to take some off the table,'” Josey said, adding, “Much like a lot of investors followed Third Point in, a lot will follow Third Point out.”

Loeb was one of Yahoo’s most vociferous critics before he joined the board, blaming management for ineffective performance and an incoherent revival strategy.

No matter what his reasons – whether simply to make a profit or that he feels Yahoo is on the right path – Loeb made a smart move for his own fund. If I qualified to make hedge fund investments, this would make me want to back Loeb. It’s rare that someone can be so personally involved in a company and remain clear-headed about the final objective of making money for investors.