Recently, Yahoo admitted that it can't come to terms with Dan Loeb, who runs a hedge fund called Third Point that owns a decent percentage of the struggling Internet company and really, really doesn't like where Yahoo is going. Yahoo isn't nuts about Loeb, either — and said so when it revealed that it isn't going to let him gain a seat on the board on directors.
Loeb owns almost six percent of the company and has been making noise for months now about undertaking a proxy battle for control the Yahoo board. He's been extremely un-quiet about what he thinks Yahoo is doing wrong, going so far as to establish a website, valueyahoo.com, which outlines Third Point's case for turning Yahoo around and replacing four board members with its own slate.
Here's the vision that Loeb & Co have outlined:
We believe in Yahoo!, its loyal users, committed employees, dedicated partners, and the potential of the brand. Yahoo! shareholders, employees, and partners have suffered for too long with a revolving door of management teams and Directors who have been unable to seize opportunities despite the Company's enduring role as the premier online source for news, sports, business, entertainment and email.
We believe Yahoo! has lost its way. Yahoo! should be the destination for news, entertainment, and enjoyment for users and their friends. We want to work alongside Yahoo! Directors to return to a culture of innovation and entrepreneurship, and turnaround this valuable company.
That reads to me as if Yahoo shouldn't be a tech company anymore but should seek ways to get its ad revenues to match its massive user base. By being a media company that so satisfies those users that they can't stay away. (Although that might all fail to deliver Yahoo from stagnation if the real action shifts to the mobile web over the rest of the decade.)
Of course, Loeb could also be thinking about softening Yahoo up for a takeover. The stock price has been bumping along under $20 for seemingly forever now, which is a far cry from the $30-plus-per-share offer from Microsoft that Yahoo spurned in 2008. There aren't that many companies that can swallow Yahoo, which even in its depressed state still has a market cap north of $18 billion. As I wrote back in September, Loeb can't do it alone.
However, Loeb and his proposed board slate seems to think that Yahoo has major untapped value, specifically in its 42-percent stake in Alibaba, an Asian e-commerce site. Don't sell it!
The Shareholder Slate believes the size of Yahoo!’s stake in Alibaba and the growth trajectory should continue to create meaningful shareholder value for Yahoo! investors. We believe a 20 percent increase in the value of Alibaba would drive almost $2.00 in value per Yahoo! share, and we see far more upside potential in this asset.
Given the enormous value of Alibaba and its significant growth potential, the importance of understanding and maximizing the value of this investment cannot be overstated. The Shareholder Slate’s experience in evaluating financial assets and negotiating complex financial transactions could help realize the true value of Yahoo!’s investment in Alibaba for the benefit of all shareholders.
Translation: The current Yahoo board doesn't know what it's doing and doesn't even know what it has to work with.
The current Yahoo board also isn't even remotely interested in letting Loeb himself get a seat at the table, as it recently indicated, much to Loeb's dismay. Even that was a bit of slap to the hedge-funder, as Yahoo was only offering two seats, not four, perhaps as a way to prevent Third Point from undertaking a proxy battle.
You could say that things are now getting ugly, ahead of an annual meeting, the date for which hasn't been set. Today, Loeb fired off a letter to the Yahoo board that claimed the new CEO, Scott Thompson, doesn't actually have a computer science degree, but only an accounting degree:
...Third Point initially assumed that the documents we had reviewed were incorrect and the representations in Yahoo!'s public filings were accurate. However, we were then informed by Stonehill College that Mr. Thompson did indeed graduate with a degree in accounting only. Furthermore, Stonehill College informed us that it did not begin awarding computer science degrees until 1983 -- four years after Mr. Thompson graduated. We inquired whether Mr. Thompson had taken a large number of computer science courses, perhaps allowing him to justify to himself that he had "earned" such a degree. Instead, we learned that during Mr. Thompson's tenure at Stonehill only one such course was even offered - Intro to Computer Science. Presumably, Mr. Thompson took that course.
If Mr. Thompson embellished his academic credentials we think that it 1) undermines his credibility as a technology expert and 2) reflects poorly on the character of the CEO who has been tasked with leading Yahoo! at this critical juncture. Now more than ever Yahoo! investors need a trustworthy CEO.
Loeb also goes after Patti Hart, the Yahoo board member who ran the search committee that hired Thompson, for misrepresenting her academic credentials. Yahoo responded, admitting that it transmitted incorrect information on Thompson. It fudged the issue a bit with Hart.
But what's really going on is that Third Point is fighting back and setting the stage for a proxy battle that now seems almost inevitable.
The Yahoo annual meeting is usually in June, so this could all come to a head pretty soon. It does seem pretty clear that Third Point is long Yahoo — invested in the idea that the company is worth more than its stock price currently says — and is willing to go the extra mile to increase what its $1-billion stake is worth.