The Yahoo! Inc. (YHOO) Turmoil Continues by Activist Stocks
Ever since Marissa Mayer took over the reigns of Yahoo (NASDAQ:YHOO) in 2012, trouble has been brewing. At first, her hiring inspired hope that she would turn around the company and lead them further. Unfortunately, that wasn’t/isn’t the case. The staff is losing faith in leadership and the company is in need of a desperate overhaul. However, time is now on Mayer, nor the company’s, side.
Some investors feel that the only way to fix the problem is the firing of Marissa Mayer. She’s now turned her focus to making cuts in the company, where she’s expected to announce more major layoffs by month’s end – and could be upwards of 10% of the staff. This is part of her plan to streamline the company.
Starboard Value increases its pressure on Yahoo! Inc. (YHOO)
This activist hedge fund has been in YHOO for a couple years. It initially pushed for the spin off of Alibaba (NYSE:BABA), but later turned against that idea – now pushing for a sale of the entire company.
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In a recent letter sent by Starboard Value, the fund said it’s disappointment with the company and a restructuring of the company. Starboard says it shares the disappointment with other investors that Yahoo is trying to turnaround its business, noting that Yahoo’s core business is failing tremendously only offset by their investment in Alibaba.
Now, the sale that Starboard and others want goes against Yahoo’s plan of spinning off the core business. The issue being, this spinoff will likely be taxable.
Canyon Capital Advisors LLC, a smaller activist, sent yet another letter to Yahoo last week as well. It doesn’t want Yahoo to waste more time or capital on a turnaround and also pushes for a sale of the core business or the entire company. Canyon is singing a similar song as many shareholders in its thesis for owning – pointing to the sum-of-the-parts undervaluing. The fund notes that YHOO has spent some $3 billion on acquisitions and the market is ascribing no value to those. Now – Canyon also takes issue with reports that it’s heard Yahoo is looking to hire more people (despite the planned large layoff) and spend on acquisitions.
Yahoo recently fired back against this activist outcries, noting that it remains committed to being good stewards of capital. It plans to share some details on its turnaround plan and future plans in the earnings calls. What’s more, Yahoo called out Canyon’s letter has having many misperceptions and mischaracterizations.
Employee and Wall Street disappointment
As well as the layoffs the company wants to put focus more into Yahoo before their fourth quarter earnings call. Starboard plan is enticing right now – wanting the company to sell of its core Internet business and keep all of its Alibaba assets. Time will tell if management will listen, but note that the proxy deadline is approaching. Starboard, by all accounts, is gearing up for a proxy fight here.
There big issues within Yahoo that will make a turnaround hard. Employees are leaving at record rates. Only 34% of employees at Yahoo believe the company’s situation and current position is improving.
Miguel Heft at Forbes put it quite eloquently whilst explaining the problem with Mayer. He said “Early in her tenure she demanded that a landing page ad on Yahoo Mail be removed simply because she didn’t like the user experience. Executives pushed back, noting the ad brought in roughly $70 million annually, to no avail. “She knew she didn’t like it, but there was no thinking about the impact,” says a former executive.”
Mayer does not seem to have the big picture ahead and her future plans aren’t garnering much confidence. If she listens to activist investors like Starboard there may be a chance for the company under her leadership. If she doesn’t, the reality of the situation is she will not be the CEO come 2017.