Starboard Value, the activist hedge fund firm run by Jeffrey Smith, plans to nominate a full slate of directors for Yahoo’s board in hopes of unseating all of them. Smith said in a public letter that his firm has tried for the last 18 months to work behind closed doors with the Internet company but has been unable to make any headway.
Starboard holds a 1.7% stake in Yahoo worth about $570 million. The firm said it has been very disappointed with the company’s “dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability by the board.” Fortune posted the firm’s letter in its entirety.
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Jeffrey Smith targets Yahoo’s board
Starboard plans to nominate nine directors for the board of directors at the annual shareholder meeting. The firm has already selected the nine people it plans to nominate. On the list of candidates is a number of media and technology executives, including Bridge Baker, a former NBCUniversal executive, and Tor Braham, former global M&A head for Deutsche Bank Securities.
Yahoo was pressured into selling its core Internet assets by shareholders, led by Jeffrey Smith’s firm. However, Starboard insists that the company’s management is moving too slowly. Smith said in the public letter that although Verizon and other big companies like Time. Inc. have expressed interest in acquiring Yahoo, it appears like very little progress has been made in actually moving forward with the bidding process.
Yahoo said to be dragging its feet
Jeffrey Smith quotes CTFN as describing bidders as being “uneasy” about the bidding process as Yahoo reportedly presented a document that was three to four times longer than the typical document produced when entering a bidding process. Further, the non-disclosure document reportedly didn’t have any private financial details included.
“Yahoo’s asking for restrictions without offering information,” CTFN wrote, citing a sector banker.
Whenever a non-disclosure document is signed, it typically is a two-way promise with the buyer agreeing not to say anything about the discussions and the seller agreeing to hand over private information.
The banker added, “There’s no quid pro quo for Yahoo bidders” in this case, meaning that Yahoo wants bidders to agree not to talk but doesn’t seem willing to provide any private financial information in exchange.
“Onerous and off-market terms”
Jeffrey Smith said in his public letter that it appears as if Yahoo is only now beginning the process and that it seems to be demanding “onerous and off-market terms.” He added that Verizon management has repeatedly said that they’re interested in buying Yahoo’s core business, but as recently as March 9, they said they haven’t received any information from the Internet firm that can be used to consider making a bid.
The Starboard CEO goes on to quote Verizon Chief Financial Officer Francis Shammo as stating that there haven’t been any negotiations with yahoo at all, calling the matter “interesting.” The executive said until they get a chance to see “under the hood” at Yahoo, they don’t have anything to talk about. Verizon won’t make any decision about how much to bid or even whether to actually enter a bid until Yahoo shares private financial information. Smith says that this should not only trouble shareholders but also prospective buyers, questioning whether Yahoo management is actually serious about beginning a bidding process for the core business.
This is why he sees it as being necessary to replace the Internet firm’s entire board, noting that the sale process “has been publicly criticized repeatedly for being too slow, fraught with conflicts of interest, and very difficult for highly qualified and motivated strategic and financial buyers to access much needed diligence information.”
Although Yahoo hasn’t set a date for its annual shareholder meeting, it is expected to be held in June. Shares of Yahoo are nearly flat at $34.79 as of this writing.