By Wendy Lee, San Francisco Chronicle
Rebellious Yahoo investors seeking to oust CEO Marissa Mayer and hasten a sale of the troubled search pioneer moved on Thursday to replace the company’s entire board, setting up a showdown at the annual shareholders meeting this summer.
Starboard Value, a New York hedge fund, nominated nine members to Yahoo’s board, picking executives with experience in media and technology. Those candidates, who include Starboard CEO Jeffrey Smith, will go up against Yahoo’s existing board members in an election this summer, with shareholders picking the winners.
Starboard has long threatened to take control of Yahoo’s board and has advocated for Mayer to step down. The hedge fund, which owns 1.7 percent of Yahoo shares, has pushed Yahoo to sell its core Internet businesses and criticized the company for not moving fast enough.
“We believe the Board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders,” Smith wrote in a letter to Yahoo investors on Thursday.
Starboard nominated executives with expertise in finance, acquisitions, intellectual property and — in several cases — operating troubled businesses. The nominees have held leadership or oversight positions in such high-profile companies as NBCUniversal, Tesla Motors, AOL and the Los Angeles Times. Starboard culled through more than 100 candidates before settling on a final list.
“People were impressed by the slate of board candidates,” said Neil Doshi, an analyst with Mizuho Securities USA Inc. The list, he said, includes more executives with tech and media experience than Yahoo’s current board.
“It could create a bit of a challenge for Yahoo’s management team,” Doshi said.
Talk of sale, but no action
Yahoo announced in January that it would explore a sale of its core business, and telecommunications giant Verizon has publicly expressed interest. But Smith in his letter accused Yahoo’s current board of dragging its feet. Verizon’s chief financial officer, Smith noted, said on March 8 that his company had not yet held discussions with Yahoo.
“This is why we believe it is critical to elect a new Board that would provide much-needed credibility to a process that has been publicly criticized repeatedly for being too slow, fraught with conflicts of interest, and very difficult for highly qualified and motivated strategic and financial buyers to access much needed diligence information,” Smith wrote.
Yahoo said a board committee will review Starboard’s nominees and “respond in due course.” The company declined further comment.
Mayer said in a March 9 interview with Charlie Rose that she would like to remain CEO of Yahoo and hopes potential buyers would consider keeping her as CEO. Some investors have questioned whether this may affect the sales process, because buyers may feel pressured to keep Mayer around in order to better their prospects of landing a deal.
Mayer has embarked on a plan to revive Yahoo by focusing on fewer products. She has led the company since 2012 and has helped increase revenue in mobile, video, social and native advertising. But her efforts have not reversed declining adjusted earnings at Yahoo.
Mayer believes Yahoo can turn the corner, but it’s unclear whether her entrepreneurial optimism will win out against the financial realities of Wall Street.
“I feel like I’m so close. Like I can see it,” Mayer told Rose. “I can see how Yahoo can win.”
If Starboard seizes the majority of seats on Yahoo’s board, Mayer will likely lose her job. The hedge fund already has a track record of winning seats on boards, replacing the entire board at Darden Restaurants in a 2014 proxy fight.
Along with Smith, Starboard’s slate of candidates for the Yahoo board includes:
•Bridget Baker, a former NBCUniversal executive in charge of TV network distribution who led its subscription revenue business. Baker is a director of Alaska’s largest telecommunications firm, General Communication Inc.
•Tor Braham, former managing director and global head of technology mergers and acquisitions for Deutsche Bank Securities Inc. Braham has worked on more than 100 tech-industry mergers and acquisitions. He serves on the boards of NetApp Inc., Viavi Solutions Inc. and Sigma Designs Inc.
•Brad Buss, former chief financial officer of SolarCity and Cypress Semiconductor. Buss is a director at Tesla Motors, Advance Auto Parts and online retailer CafePress Inc.
•W. Lance Conn, former president of Vulcan Capital and a former AOL executive. At AOL, he held executive vice president roles in areas including operational effectiveness as well as business affairs and development.
• Dale Fuller, a former tech executive who served as interim CEO of McAfee Inc. and CEO of Borland Software. Fuller is chairman of the supervisory board at software firm AVG Technologies, chairman of tech startup MobiSocial and a director on Quantum Corp.’s board.
•Eddy Hartenstein, former CEO and chairman of DirecTV and former head of the Los Angeles Times Media Group and its parent company at the time, Tribune Co. In his role at Tribune, Hartenstein led the company through its Chapter 11 bankruptcy filing.
•Richard Hill, former CEO at semiconductor firm Novellus Systems Inc., who in 2012 sold the company to Lam Research Corp. in a deal worth more than $3 billion. He is also chairman and former interim CEO of Tessera Technologies Inc., which specializes in creating and licensing intellectual property.
•Debra Janssen, chief operating officer of regional bank holding company Bankers Trust and former CEO of CDS Global (a division of Hearst Corp., The Chronicle’s parent company).
Yahoo is gearing up for the inevitable proxy battle.
Despite holding discussions with Starboard, the company filled two of its vacant board seats with new members this month. Many analysts interpreted the move as Yahoo’s way of saying that it would not relinquish control of the board without a fight.
Eric Jackson, a managing director at activist investor SpringOwl Asset Management LLC, said he believes Yahoo may try to sell the company before the annual shareholder meeting, in order to avoid a vote on Starboard’s nominees. Jackson says he worries that Yahoo will sell its core businesses for too low a price, which is “not a win for Yahoo shareholders.”
‘We’re repeating history’
Analysts had mixed reactions on whether Starboard’s move against the Yahoo board would impact a sale. Doshi said some buyers may want to wait until after the proxy battle, especially if Yahoo’s Internet properties decline in value. Other observers say it won’t impact bidding.
Douglas Clinton, a research analyst with Piper Jaffray, believes Yahoo will succeed in maintaining control of its board. Just four years ago, another activist investor, Third Point, won seats on Yahoo’s board and helped oust CEO Scott Thompson, bringing in Mayer as CEO. Investors would rather just sell than go through that process again, Clinton said.
“The best-case scenario is for shareholders to finally sell,” he said. “We’ve been through this situation before, and the board has been changed. We’re repeating history.”
©2016 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
