Market Overview

Carol Bartz: Yahoo "F'd Me Over!"


Carol Bartz is leaving the Yahoo (NASDAQ: YHOO) CEO post the same way she came in - with fire and vigor and plenty of "F bombs." Speaking of the company's board of directors, she told Fortune that "These people f**ked me over." According to Bartz's telling of the events surrounding her firing as CEO of Yahoo, she was in New York to speak at a Citigroup (NYSE: C) technology conference when she got a call from chairman Roy Bostock at 6 p.m. She missed his initial call and then called him back 6 minutes later. According to Bartz, Bostock read her a lawyer's prepared statement firing her. Her response: "I said, 'Roy, I think that's a script,'" adding, "'Why don't you have the balls to tell me yourself?'" When the chairman finished, she told him "I got it. I got it," before adding "I thought you were classier."

Despite Bartz's belief that she did not get a fair shake, the company was pretty much a complete mess under her tenure. To be fair, it was a mess before she got there too. While Bartz succeeded in creating a leaner company and improved margins, she was wholly unsuccessful in driving innovation and revenue growth.

Yahoo has been deteriorating for years, and she did nothing to stem the bleeding as the company continued to get whipped by the likes of Google (NASDAQ: GOOG) and Facebook, among others. As one blogger aptly put it, the company used to organize the internet, now it is just a place to go for stock quotes and fantasy football. Despite the headwinds and lack of innovation that have defined Yahoo's core business in recent years, the company does own very valuable stakes in Asian internet properties Yahoo Japan and Alibaba.

Bartz believes that she was fired because the board of directors was spooked into action because of its own past failures - such as turning down a lucrative buyout deal from Microsoft (NASDAQ: MSFT) in 2008. "The board was so spooked by being cast as the worst board in the country," Bartz says. "Now they're trying to show that they're not the doofuses that they are."

In the hours after the phone call with Yahoo's chairman, Bartz pulled out her iPad and wrote a very brief email to the company's 14,000 employees.

To all,

I am very sad to tell you that I've just been fired over the phone by Yahoo's Chairman of the Board. It has been my pleasure to work with all of you and I wish you only the best going forward.


Bartz was gracious when speaking about Tim Morse, who has been named interim CEO, calling him a "great guy." She also said that "I want to make sure that the employees don't believe that I've abandoned them. I would never abandon them." She added, "I wish the Yahoo people the best," she adds, "because it's a fantastic franchise."

The market reacted to Bartz's departure with mild enthusiasm, sending the shares up around 5%. The intrigue in Yahoo is continuing today, as hedge fund heavyweight, and master agitator, Dan Loeb revealed a 5.1% stake in the company. Loeb runs Third Point LLC, a $8 billion hedge fund with a track record of both controversy (not unlike Bartz) and heady returns. In revealing his stake, Loeb penned one of his famous letters castigating both Bartz and the company's board of directors.

In opening, Loeb wrote, "It is now widely accepted that the Board made a serious misjudgment in approving the hiring of Carol Bartz as Yahoo's Chief Executive Officer, given her inexperience in the consumer-oriented internet space. Although we are pleased that the Board has terminated Ms. Bartz's employment, we fail to understand why this decision was so long in coming given her abysmal performance over the last two and a half years. During this period, Ms. Bartz's poor decision-making and communication skills publicly alienated the Company's highly respected Asian partners, as well as its shareholders, sell-side analysts, bloggers, customers and employees."

He went on to further blast the board of directors and then requested that 4 directors, not including Ms. Bartz herself, resign. One of the singled out directors was Bostock, the Chairman. To wit, "Accordingly, we insist that Mr. Bostock, who championed Ms. Bartz's hiring and led the charge against the Microsoft deal, promptly resign from the Board. We also demand that fellow Directors Arthur Kern and Vyomesh Joshi, who have stood by silently during these last five years of woeful performance, join Mr. Bostock in resignation. Finally, we can only assume that Director Susan James, the President of Tri-Valley Animal Rescue, will also resign, given her close relationship with Ms. Bartz. If she does not do so voluntarily, the Board should request her resignation as well."

Third Point's letter revealing the hedge fund's 5.1% stake has pushed YHOO shares up another 3% on Thursday to around $14.00. Loeb is not the first high-profile investor to see significant value in the company. Others who have taken a stab at turning a profit on Yahoo shares through shareholder activism include Carl Ichan and David Einhorn. Neither were successful. Yahoo shares have lost around 50% in the last 5 years, making the company's refusal to sell itself to Microsoft for $31 in 2008 a critical mistake. At the time, the buyout offer represented a 61% premium over YHOO's market price.


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