By Wendy Lee, San Francisco Chronicle
Potentially speeding the sale of one of Silicon Valley’s best-known companies, Yahoo announced Wednesday that it has reached a settlement with activist investor Starboard Value to give the New York hedge fund four seats on the board.
The move, which will initially expand Yahoo’s board to 13 members, avoids a high-stakes proxy fight between the struggling Internet search pioneer and Starboard, its most vocal critic.
Starboard has been pushing Yahoo to oust CEO Marissa Mayer and sell its core properties, including its search business, Yahoo Mail, News, and blogging platform Tumblr. In February, the hedge fund moved to replace Yahoo’s entire board, nominating its own hand-picked candidates. As part of Wednesday’s settlement, Starboard will withdraw those nominations.
The move is a major concession for Yahoo, placing the company on the fast track to a sale.
Mayer has worked on a turnaround plan at Yahoo for nearly four years and in a March interview with Charlie Rose said she “can see how Yahoo can win.” Wednesday’s announcement indicates that Yahoo will probably not revive its fortunes — at least, not as an independent business.
“It’s just an admission on Marissa Mayer’s part that the sale is really in the best interest of shareholders,” said Victor Anthony, an analyst with Axiom Capital Management.
Several analysts said Wednesday that Mayer will likely remain CEO until a sale is announced. Keeping Mayer allows Yahoo’s board, which has supported her in the face of increasingly harsh criticism, to save face.
“You are about to sell the core, anyway,” said Robert Peck, an analyst with SunTrust Robinson Humphrey. “Why fire someone? You just don’t need to.”
If Yahoo is sold and Mayer let go, research firm Equilar estimates that her severance package will be worth more than $50 million, depending on the company’s stock price at the time.
Starboard CEO Jeffrey Smith will serve on the board and on two committees, including the strategic review committee that will evaluate offers to buy Yahoo’s core business. Starboard’s other nominees who will serve on the board are Eddy Hartenstein, former CEO of DirecTV and of the Los Angeles Times Media Group; Richard Hill, chairman of Tessera Technologies; and Tor Braham, former global head of technology mergers and acquisitions for Deutsche Bank Securities.
Yahoo also agreed to pay Starboard up to $2 million for its “reasonable and documented out-of-pocket fees and expenses (including legal expenses),” according to a document filed with the Securities and Exchange Commission.
“This constructive resolution will allow management and the board to keep our focus on our extremely important objectives,” Mayer said in a press release. “Management is looking forward to working with the entire board, including the new directors, to maximize shareholder value.”
The new directors will join Yahoo’s board immediately, bringing it to 13 members. After its shareholders meeting, two of Yahoo’s directors, H. Lee Scott Jr. and Sue James, plan to step down and not run for re-election, dropping the number of board seats to 11. James is a former Ernst & Young partner and Scott is the former CEO of Wal-Mart Stores Inc.
Under the agreement, Starboard will have representatives on all of Yahoo’s board committees. The shareholders meeting will take place on or before June 30.
Yahoo declined to make members of its leadership team available for interviews. Starboard did not return a request for comment, but in a press release, Smith said he looked forward to “getting started right away.”
The management has been exploring many alternatives for its business, including a sale, turnaround and potentially spinning off its core business and investment stake in Yahoo Japan. Critics complained that the board wasn’t moving fast enough and didn’t seem genuinely interested in a sale. The settlement should erase those concerns.
“With the board under fire, you really can’t operate very well,” said Rob Enderle with advisory services firm Enderle Group. “It allows Yahoo to go forward with more of a combined front.”
Starboard, meanwhile, will avoid the possibility that Yahoo shareholders would reject the hedge fund’s board candidates at the annual meeting. In general, activist investors tend to land board seats more than 45 percent of the time in proxy fights, according to a J.P. Morgan report.
Peck believes that a sale of Yahoo’s core business could be announced as early as the second quarter and could fetch $6 billion to $8 billion. Yahoo has already begun looking at initial bids. Many analysts believe that Verizon is a front-runner.
“The sale of the core is inevitable,” Peck said. “Today’s announcement facilitates that even more.”
©2016 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
