Yahoo Prepares for Vicious Board Battle
It was reported on Thursday that Yahoo (NASDAQ: YHOO) is preparing for a nasty, lengthy battle, following the news that a major shareholder in the company is launching an unflinching campaign to win four seats on the board.
The shareholder in question is hedge fund Third Point, which owns a 5.8% stake in YHOO. Third Point apparently believes that Yahoo, currently struggling, would see results improve if it had representatives in the boardroom, helping new CEO Scott Thompson. Thomson recently jumped ships at eBay's (NADDAQ: EBAY) Paypal to join Yahoo.
Third Point began proceedings on Wednesday with a regulatory filing, over one month since it publically stated that it would be shaking things up unless Yahoo accepted its candidates for director. Last week, Third Point CEO Daniel Loeb offered Yahoo one last chance to comply.
So Yahoo cannot claim that they were not warned, or that this move came out of the blue. Third Point, looking to protect its investment, is simply being true to its word.
Of course, that will be of no consolation to Yahoo, which must now steel itself for what basically amounts to a shareholder mutiny.
According to the Wall Street Journal, this is the second time in only four years that YHOO has had to deal with a boardroom challenge. 2008 saw Carl Icahn try to overthrow the board after Yahho turned down the chance to be sold to Microsoft (NASDAQ: MSFT) for $47.5 billion, or $33 per share.
Third Point will use that Microsoft deal-that-never-was as an example of ineptitude. Unless a compromise can be reached beforehand, the battle will be settled in the ring or, more precisely, as Yahoo's annual meeting. A date for that meeting has yet to be set, although it is usually in June.
It has been a tough year so far for YHOO, and it is natural that Third Point would be concerned. In a research report published on March 6, Piper Jaffray said that, while Yahoo!'s display business showed some signs of life in February, it believed the company still has a long way to go to return to double digit y/y growth. Based on Piper's daily ad checks, it believes that 55% of home page ads observed in February were guaranteed compared to 75% last February and 35% in January.
“More importantly we believe the rate of rich takeover units was up meaningfully in February. While deal talks seem to have slowed, we believe a Alibaba/Yahoo! Japan deal could still happen and would drive upside through excess cash that Yahoo! Could use to buy back shares.”
Goldman Sachs said on March 1 that revenue growth at Alibaba was 72% yoy in the September quarter, a deceleration from 81% in the prior quarter. Operating margins were 17%, up 300 bp from the year ago period. The company reports a limited financial result on a trailing-quarter basis through Yahoo's filings.
It is apparent that everybody besides Yahoo knows that the company needs to get into bned with someone and quickly if it wants to survive.
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Tags: Third Point Capital