Yahoo sacks its CEO but finds itself in play

9th September 2011

Here CNBC reports on developments which saw the stock jump 6.1 per cent to close at $14.44 on Thursday.

First hedge fund Third Point announced that it had taken a 5.2 per cent stake in Yahoo. Second the market was awash with rumours that founder and former CEO Jerry Yang wanted to buy the business.

Certainly the hedge fund was trying to attach strings to its investment – including that Chairman Roy Bostock depart the firm.

Third Point boss Daniel Loeb wrote to Yahoo a letter including the following demands. "From the failed Microsoft sale negotiations, to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections, and most recently the Alipay debacle, this Board's failures have destroyed value for all Yahoo stakeholders…Against this background, 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."

Yahoo made itself centre stage earlier in the week by sacking of CEO Carol Bartz as reported here by Business News Daily which debates whether a CEO should ever be fired by phone.

Bartz in typical feisty fashion didn't take things lying down. Here in an interview with Fortune magazine, Bartz lets rip and suggests that "Yahoo f**ked me over."

Fortune reported it this way. "On Tuesday, Bartz was in New York, to speak at Citigroup's technology conference the next day, when she was supposed to call Bostock at 6 p.m. "I called him at 6:06," she recalls. When he got on the line, she says, he started reading a lawyer's prepared statement to dismiss her.

"I said, 'Roy, I think that's a script,'" adding, "'Why don't you have the balls to tell me yourself? When Bostock finished reading, Bartz didn't argue-"I got it. I got it," she told the Yahoo chairman. "I thought you were classier," she added.""

The magazine adds some further colour to the interview. It continues: "Recruited in January 2009 after successfully building Autodesk, Bartz never was the turnaround chief that the Yahoo board had wanted. Though she slashed costs and improved profit margins, she failed to improve revenue growth at a critical time when Yahoo has lost eyeballs and ad dollars to Google and Facebook. "They want revenue growth," says Bartz about the Yahoo board, "even though they were told that we would not have revenue growth until 2012."

By the end of the week, though the firing had been forgotten. More attention was being given to Yahoo's co-founder and former CEO Jerry Yang, who it was reported, was aiming to buy back the company.

This is however a trickier than it might sound as Yang is already on the board.

Here technology blog site TFTS considers the barriers to Yang taking over – again. It writes: "Yang owns only about 3.63% of the company, he will have to look for allies to execute this plan. Fellow co-founder David Filo – who owns 5.80% – is likely to be an ally, although Yang is said to be in conflict with Yahoo! Chairman Roy Bostock.

"Whatever Yang plans, he will definitely need to raise enough capital to acquire enough shares of Yahoo! stock to gain control. It's even speculated that Yahoo! will go private – a move that might help the company become better-able to restructure its management and business, and find its direction anew. If they are successful, then Yahoo! might be able to rise from the ashes, so to speak, and go public again with a stellar IPO."

But could Yang be part of the problem, not the solution? The Wall Street Journal makes some pretty cutting remarks about Yang's presence. Rather than buy the firm, Stephen Grocer on Deal Journal suggests he could be in the way of a value creating break up.

He writes: "While former Chief Executive Carol Bartz clearly had made missteps and deserved to be removed, the board has to accept its share of responsibility for Yahoo's predicament. In particular, that means Mr. Yang, who as CEO helped lead the charge against accepting Microsoft's $33-a-share offer back in 2008. That was one of the worst decisions in the media industry since Time Warner's board agreed to sell itself to America Online in 2000."

Of course, love him or loathe him, Yang isn't the only game in town. Ars Technica puts itself in Microsoft's shoes today and wonders if it might renew its interest.

Anders Bylund writes: "First of all, the price is right these days. If Mr. Softy was willing to pay as much as $44 billion for Yahoo once upon a time, the $16 billion market cap as of last night surely looks like a bargain. Add in a healthy dose of nearly debt-free cash on the books, and Yahoo's enterprise value becomes a paltry $13.8 billion.

"But deep-discount prices aren't everything. In the words of legendary investor Warren Buffett, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." The price may be wonderful, but what would Ballmer get for the money?"

Here the BBC technology correspondent Roy Cellan-Jones however sees managed decline.

"Remember, Microsoft offered $33 a share back in 2008 – but the share price has never climbed above $20 under Ms Bartz's tenure, and in early August was heading perilously close to the $10 level. What has happened over the past couple of years has been a process of managed decline, rather than spectacular collapse.There are still hundreds of millions using Yahoo mail, or sharing photos via Flickr – or checking sh
are performance via Yahoo Finance. But nothing has happened to the company that might scare Google in the search field, or give Facebook executives sleepless nights about a new social media rival."

Could Business Insider's CEO Henry Blodget arrest that decline? Making the boldest offer of the week,

Business Insider which fires some of Yahoo's content, suggested Yahoo buy it outright, and then put Business Insider in charge as WebProNews reports here.

Blodget wrote: "Given all the private-equity firms circling around Yahoo, we expect we would have little difficulty raising the $20 billion or so we would need to buy Yahoo outright. But we're busy, and that would take time and be messy. It would also involve paying several hundred million dollars to investment bankers and other "strategic advisors." And there's no reason for Yahoo to waste that kind of money. Our plan will unlock the value embedded in Yahoo's clobbered stock, and it will restore compelling organic growth to Yahoo's core business. We live in New York, not California, and this is not a power grab. The plan involves our hiring the right CEO, something Yahoo's board has had a tough time doing over the past 11 years. We think there are only a handful of great candidates who have the combination of talents and experience necessary to succeed in this job."

Whether Blodget's offer is serious or not, the search for a new CEO is on but Yahoo has also appointed bankers for a strategic review. Clearly something besides Ms Bartz job has gotta give.

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