Whitney Tilson via an email received by ValueWalk... Tilson defends Dan Loeb over his sale of Yahoo! Inc. (NASDAQ:YHOO) shares and attacks the author of the article over many of his claims. A short comment by Tilson, followed by the article and Tilson's rebuttal.
This article is such an outrageous and truly moronic attack, filled with meaningless inflammatory demagoguery, on both Yahoo! Inc. (NASDAQ:YHOO) and Third Point/Dan Loeb that I feel compelled to respond. Here’s the article:
Loeb Wins and Shareholders Lose Out at YahooBy ROBERT CYRAN
Daniel Loeb’s Yahoo exit hurts investors twice over. The Internet company is buying back two-thirds of the hedge fund mogul’s stake, owned by his firm, Third Point, for $1.2 billion. That sucks up most of the cash Yahoo reserved for repurchases. It also heralds the departure of three Third Point-approved directors, robbing Yahoo of some much-needed advisers.
Yahoo Has Certainly Benefited From Mr. Loeb’s Involvement
Yahoo! Inc. (NASDAQ:YHOO) has certainly benefited from Mr. Loeb’s involvement. When he first bought shares in the fall of 2011, the company had a dysfunctional board with the co-founder Jerry Yang acting as dictator for life. Nearly all the company’s value was trapped in Asian assets while the company steadily lost market share in search.
Mr. Loeb’s entrance led to a wholesale upending of the board. Only two directors who served in 2011 remain. Mr. Yang, who played a key role in torpedoing a $45 billion offer from Microsoft in 2008, is gone. The company raised $4.3 billion from selling a chunk of its Asian holdings and agreed to use $3.65 billion to buy back stock.
Loeb Played A Key Role In Firing Yahoo’s Chief Executive
Mr. Loeb played a key role in firing Yahoo’s chief executive at the time, Scott Thompson, and in hiring Marissa Mayer. At the very least, her abilities and presence have excited investors and Silicon Valley. Yahoo’s share price has roughly doubled since Mr. Loeb’s involvement.
And the deal Mr. Loeb has secured looks pretty sweet. Yahoo is buying his shares at July 19’s closing price, guaranteeing liquidity without forcing Third Point to pay a discount, as usually happens when an investor offloads a large chunk of stock. Yahoo! Inc. (NASDAQ:YHOO) fell as much as 4 percent on the news.
The only ones missing out are regular shareholders. Their stock has been shunted to the back of the buyback line. Nor are there any obvious candidates on the board to take on Mr. Loeb’s role either as a restraint on Ms. Mayer’s ambitions or as an advocate for proper capital allocations.
That’s important because it’s still not clear Yahoo! Inc. (NASDAQ:YHOO) can turn its Internet business around without lots of deal-making and spending – last week the company trimmed its 2013 sales outlook, for example. Without proper oversight, that could destroy some of the very value Loeb has just cashed in on.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
Let’s analyze Cyran’s arguments. First, he writes:
The Internet company is buying back two-thirds of the hedge fund mogul’s stake, owned by his firm, Third Point, for $1.2 billion. That sucks up most of the cash Yahoo! Inc. (NASDAQ:YHOO) reserved for repurchases… The only ones missing out are regular shareholders. Their stock has been shunted to the back of the buyback line.
Cryan demonstrates total lack of understanding about buybacks. Economically, it makes no difference whose shares Yahoo buys back – a retired share is a retired share – so writing that other shareholders have been “shunted to the back of the buyback line” is meaningless inflammatory demagoguery.
It would be one thing if Yahoo! Inc. (NASDAQ:YHOO) didn’t have a buyback program in place and created one to buy back Third Point’s shares (or, worse yet, did a one-off deal). But that’s not the case: Yahoo has a $5 billion buyback program in place, a fact Cryan conveniently ignores – in fact, he seriously misstates the facts when he writes that Yahoo’s $1.2 billion purchase of Third Point’s shares “sucks up most of the cash Yahoo reserved for repurchases”. Since when is $1.2 billion out of $5 billion (24%) “most”?!
Yahoo! Inc. (NASDAQ:YHOO) has $6 billion in cash and no debt (a mere $125 million in “Capital lease and other long-term liabilities”), so it’s drowning in cash to repurchase shares from all shareholders.
Assuming shareholders agree that the company is wise to repurchase its shares (I’m not saying it is or it isn’t – I have no position in the stock), then they should be celebrating the fact that the company was able to execute on 24% of its repurchase program in one fell swoop.
Second, Cryan argues that Yahoo! Inc. (NASDAQ:YHOO) gave Third Point a sweetheart, insider price:
[T]he deal Mr. Loeb has secured looks pretty sweet. Yahoo! Inc. (NASDAQ:YHOO) is buying his shares at July 19’s closing price, guaranteeing liquidity without forcing Third Point to pay a discount,