All nine members of Yahoo’s board are up for re-election this year, and hedge fund investors Starboard Value, which owns a 1.7 percent stake, are calling to replace all nine members. (Nominations are due Saturday.)
The dissatisfaction with the struggling company was in response to Yahoo’s announcement during its recent quarterly earnings call that it was considering selling off its core Internet business. In a report, Starboard stated that “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.”
Activist investor Spring Owl responded, and said that the company doesn’t support the idea of Yahoo’s core business being sold off “at a fire sale price.”
“A sale may be the only option left for Yahoo because of the billions wasted over the past four years on inconsequential M&A, internal investment that resulted in no new products of significance, supposed ‘star’ executives lured away for millions and then fired, no articulated turnaround plan until a week ago and the wasted money on sponsoring Davos, the Met Ball and free food, which former unicorns can’t afford any more,” they said.
Yahoo chief executive Marissa Mayer responded to these criticisms in January, calling them blatant “falsehoods in the press.” Specifically, she mentioned reports of $7 million spent on holiday parties, criticisms of Yahoo’s $450 million food program and reports of free cell phones for employees. “Both numbers are exaggerated by more than a factor of three,” she said.
In a report shared in mid-December, Spring Owl argued that, through aggressive job cuts that would get earnings before interest, taxes, depreciation and amortization up to $2 billion annually, “there appears to be a clear path to Yahoo’s core business being worth $15 billion today (using an AOL-like multiple).
In the fourth quarter of 2015, Yahoo lost $4.3 billion on revenue of $1.27 billion. The company was down 10 percent in the number of paid clicks and down 7 percent in search click-driven revenue in the fourth quarter, compared with a year earlier.
The new members suggested for the board include Starboard ceo Jeffrey Smith, in addition to Bridget Baker (director of Alaska telecom company General Communications, Inc.); Tor Braham (director of NetApp, Viavi Solutions and Sigma Designs); Brad Buss (director of Tesla Motors, CafePress.com and Advance Auto Parts); Lance Conn (director of Charter Communications); Dale Fuller (chairman of the supervisory board of AVG Technologies); Eddy W. Hartenstein (a media executive who was the ceo of the Tribune Company); Rich Hill (director of Arrow Electronics, Cabot Microelectronics Corporation, and Autodesk); Debra Janssen (chief operating officer of Bankers Trust), and Jeffrey Smith (chairman of Darden Restaurants).
“It is unfortunate that this action is necessary,” Starboard said, saying that they had been attempting to work with Yahoo for the past 18 months. “Over this time frame, we have repeatedly requested an opportunity to work with the Company, including offers to join the Board and work constructively with the current directors. At every step of the way, management and the Board have pushed us away.”
For its part, Spring Owl said, “We are happy to have choices in selecting Yahoo’s board at this year’s meeting. Shareholders do better when they get to choose who represents them on the board, rather than being force-fed management-vetted choices.”
In February, Yahoo shared that it had formed a committee of independent directors to explore “strategic alternatives” in addition to its consideration of a “reverse spin,” after it unveiled plans to shutter or merge a number of its digital magazines and lay off 15 percent of its entire workforce.
During this quarter’s earnings call, Mayer said, “As both shareholders and employees, all of us here at Yahoo want to return this iconic company to greatness. We can best achieve this by working with the committee to pursue various strategic alternatives while, in parallel, aggressively executing our strategic plan to strengthen our growth businesses and improve efficiency and profitability.”