Earlier this week, the Wrap's Fred Schruers had a piece on the post-Carol Bartz Yahoo world and reported that Daniel Loeb, who runs the $8 billion hedge fund ThirdPoint LLC, was making a run at the beleaguered Internet giant. Here's what Schruers had to say, under the headline "Yahoo Under Siege: As Hedge-Fund Raider Closes In, Founders Hint at Sale":
No investor is more of a threat than hedge-fund powerhouse Daniel Loeb, who has recently acquired 5.2 percent of Yahoo's stock. Loeb has gone after companies he thinks are mis-managed before, but the level of vitriol -- and cash -- he’s throwing at the Yahoo board shows that he’s deadly earnest this time.
For a taste of the "vitriol," you can sample this letter that Loeb sent to the Yahoo board earlier this month:
it is evident that merely replacing the Company’s CEO – yet again – will not be enough to alter the direction of the Company. Instead, a reconstituted Board with new Directors who will bring fresh eyes, relevant industry expertise and increased investor alignment to the table is immediately necessary.
ThirdPoint currently holds 5.2 percent of Yahoo, but the rudderless megaportal has a market value of nearly $18 billion, so there's no way that Loeb is taking it over without some additional help. That said, his bluster may be just that, in light of the drubbing the hedge fund industry is currently taking.
CNBC has been abuzz all day with word that John Paulson is facing mounting loses at his funds as spooked investors demand redemptions and move their money into cash and other assets that are less exposed to stock-market volatility brought on by the European debt crisis. You may remember Paulson as the guy who helped Goldman Sachs design investment products based on toxic mortgage-backed securities that it then sold to clients while simultaneously running a "big short" that was intended to deliver massive profits when those securities tanked.
When a hedge fund is faced with redemptions, its generally very wealthy investors demand a rapid sell-off of the fund's holdings, which can be considerable. This much money sloshing around tends to roil the markets and increase volatility. Funds don't always survive the process. At the moment, many seem to be on the edge, after a year of tiny-to-negative returns. ZeroHedge sums it up nicely:
There is, however, good news for all hedge fund managers reading us today: you will know whether or not you are in business next year, by this friday. As Dow Jones reports, "Friday marks a deadline for investors in many hedge funds with monthly and quarterly liquidity to say they want their capital back." In other words the pain is over, as 25% of hedge fund managers will hear their death sentence in 48 hours and the painful expectation of the inevitable ends.
ThirdPoint, which was just hanging on last month, is probably nowhere near death. But although I have no idea how many redemptions Loeb is up against, he may not be holding a 5.2 percent stake in Yahoo for much longer, especially since Yahoo's share price is falling toward its 52-week low of $11/share. In this light, Loeb's sound and fury toward the Yahoo board could be more of a signal to his investors that he's still got some mojo. But right now he doesn't look like a realistic threat to do much more than make the Yahoo board nervous about takeover partners whom he may be able to convince to lend their money to his cause.
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