It's unclear whether Scott Thompson, the Yahoo CEO who was caught faking his resume last week by activist hedge-fund investor Dan Loeb of Third Point, will stay or go as the latest leader of the embattled Internet giant. The Guardian suggests he could be gone this week. But it also fudges a bit, quoting Colin Gills of BGC Financial, who says that canning Thompson would be a major setback for Yahoo's turnaround plans.
In any case, who is this Dan Loeb, owner of almost 6 percent of Yahoo and a perpetual thorn in the side of the company's management and board?
He's a man who's unafraid to express his outrage, as it turns out. But his vehicle is so old-fashioned that it's almost charming. Last week, he attacked Thompson using the form of communication that predates the Internet, search engines, hedge funds, iPhones, automobiles, indoor plumbing, the United States of America, and sea voyages under sail. That's right, he wrote a...letter.
Back in 2005, the New Yorker's Ben McGrath captured Loeb's preferred method of agitation, in all its epistolary glory:
[N]o one seems quite as energized these days as Daniel Loeb, the forty-something multimillionaire who has positioned himself as a kind of investor’s H. L. Mencken, dedicated to puncturing the social habits and pretensions of powerful executives from his...perch at Third Point L.L.C., a hedge fund on Madison Avenue.
Loeb’s favored device is the scolding letter, formally addressed, publicly released, and ruthlessly frank in its assessments of managerial competence. He writes the boards and C.E.O.s of companies that his fund has invested in, complaining, in effect, that they are not making him and his clients enough money....To some degree, his manner is that of the traditional Wall Street crank: swagger and self-interest disguised as moralistic bombast. What Loeb brings, in terms of value-added, is tacked-on social commentary: the sly references to Brooks Brothers (“out-dated men’s fashions catering to the country club set”) or to “the Appalachian coal men coming with aspirations to wear crocodile skin cowboy boots, silver spurs and ten-gallon hats.” His style—call it hedge-fund populism—has earned him a wide readership that extends far beyond the shareholders and directors who have an interest in the matter at hand. Each new abusive dispatch makes the rounds among financial professionals....
All this from a Santa Monica kid who went to high school in Pacific Palisades. But no laid-back surfer dude here. [Actually, according to Business Insider's life story of Dan Loeb, he is a laid-back surfer dude! In fact, he named Third Point after a surfing break. I regret subtracting this from the Loeb resume.] And mendacious CEOs are the least of his targets. Last July, in an investor letter, Loeb first quoted Led Zeppelin and (I kid you not) Ecclesiastes before rising to high dudgeon to critique the policies of President Obama:
It is increasingly difficult to avoid the conclusion that while Washington burns, President Obama is fiddling away by insisting the only solution to the nation's problems — whether unemployment, the debt ceiling, or deficit reductions — lies in redistribution of wealth. Perhaps the difference between President Obama and many Americans is that the President sees prosperity as a sign of "unfairness" that needs to be corrected by government via higher taxes and increased regulation. Perhaps a plan that led the way forward by expanding opportunities rather than redistributing outcomes and emphasized growth and prosperity for all would meet with less political resistance.
Not quite as peppy as the Loeb-the-litterateur that McGrath described, although we can give the man some credit for the kind of facile Nero-fiddling-while-Rome-burns reference. Loeb is hardly along among hedge funders who feel compelled to take up the pen; Los Angeles' own Mark Spitznagel has provided ample counterpoint to the current managers of the U.S. economy, in venues such as the Wall Street Journal.
Apart from all the scribbling, however, what exactly does Loeb have in mind for Yahoo? It's not that he wants to take over the company — he doesn't have enough money to do that (although Third Point is currently managing over $8 billion). Rather, he wants to company to maximize its Asian investment in e-commerce site Alibaba. This is from Loeb's most recent investor letter, via Venture Walk:
Central to our investment thesis is the hidden jewel in the Asian asset portfolio, and indeed in Yahoo itself: Yahoo’s 40% stake in Alibaba Group, the dominant e-commerce platform in China. According to iResearch, Alibaba currently has 49% of the B2B e-commerce market (four times greater than its nearest competitor), 90% of the C2C e-commerce market (analogous to Ebay), and 53% of the B2C e-commerce market (analogous to Amazon) in 2011....
According to iResearch, China had 187 million online shoppers in 2011, compared to 170 million in the U.S. As Boston Consulting Group noted in its November 2011 report, “The World’s Next E-Commerce Superpower,” e-commerce transaction value in China is likely to overtake the U.S. by 2015, helped by conditions that mirror the U.S. and in some ways favor e-commerce in China...
The scale and velocity of China’s e-commerce opportunity, when combined with Alibaba’s dominant position, make for a very compelling story. As it moves toward an IPO, Alibaba should quickly take its place amongst China’s online leaders — Tencent ($47 billion market cap), and Baidu ($48 billion market cap). A November 2011 report on Softbank by UBS’s Makio Inui, the product of extensive research into Alibaba Group and a detailed valuation, placed a $63 billion value on Alibaba Group, which would imply just over $13 per Yahoo share after tax. It appears that while 2012 will be the year of Facebook, 2013 could very well be the year of Alibaba as it moves toward a listing.
Effectively, Third Point is using Yahoo as a way to get to Alibaba — and profit accordingly when Alibaba realizes its potential next year. This is where Loeb sees the real value, and the potential for growth. He's sort of like a turbocharged Warren Buffett, a "bottom up" value investor with extremely sharp elbows. Obviously, as you can tell from the passage I quoted above, his politics are pretty much the polar opposite of Buffett's, however.
He seems determined to get his way with Yahoo. So regardless of what happens with Thompson, don't expect Loeb to go away — or stop writing — any time soon.