Pres­sure for Ya­hoo turn­around puts squeeze on Mayer

Kuwait Times - - TECHNOLOGY -

SAN FRANCISCO:

Lack of a long-awaited turn­around at Ya­hoo has put pres­sure on chief ex­ec­u­tive Marissa Mayer to prove she has what it takes to re­vive the faded In­ter­net pioneer. In­vestors, who were al­ready dis­ap­pointed by low mo­men­tum un­der Mayer, were given more to worry about this week.

A hedge fund with a stake in Ya­hoo urged the In­ter­net gi­ant Thurs­day to drop its planned spin off of its hold­ings in China’s Alibaba. The hedge fund, Star­board Value, said the com­pany should in­stead sell its ‘core’ In­ter­net oper­a­tions.

The re­quest came with Ya­hoo on track to set up a new cor­po­rate en­tity hold­ing its multi-bil­lion dol­lar Alibaba stake in the com­ing months. ‘We have grown in­creas­ingly frus­trated with your un­will­ing­ness to ac­cept our help and your dis­mis­sive ap­proach to our se­ri­ous con­cerns about the cur­rent sit­u­a­tion at Ya­hoo,’ Star­board said in a let­ter to Mayer.

Po­ten­tial tax hit

The Alibaba stake spin off plan has been clouded by con­cerns that it may not get tax-free sta­tus from US au­thor­i­ties, re­sult­ing in a hefty tax bill for Ya­hoo share­hold­ers. Star­board said in the let­ter that the spin off of the en­tity called Aabaco Hold­ings ‘is not Ya­hoo’s best al­ter­na­tive’ and ar­gued that ‘in­stead, you should be ex­plor­ing a sale of Ya­hoo’s core search and dis­play ad­ver­tis­ing busi­nesses.’ Based on cur­rent stock prices, Ya­hoo’s mar­ket value is al­most en­tirely from its stakes in Alibaba and Ya­hoo Ja­pan, ac­cord­ing to Star­board. The hedge fund was wor­ried about the plan to trans­fer the Alibaba stake to the new com­pany and dis­tribut­ing stock in what could amount to a tax­able gift of some $30 bil­lion to share­hold­ers. Star­board would pre­fer that Ya­hoo, in­stead, split off its own In­ter­net oper­a­tions in a tech­ni­cal move ap­par­ently aimed at avoid­ing a tax bill. How­ever the out­come would be the same: one com­pany run­ning Ya­hoo’s core busi­ness and an­other han­dling the in­vest­ment in Alibaba.

‘The im­por­tant thing is for the spin off to hap­pen one way or an­other,’ BGC Fi­nan­cial an­a­lyst Colin Gil­lis told AFP. The orig­i­nal de­ci­sion to split Ya­hoo’s hold­ing in Alibaba was seen as an at­tempt to calm rest­less share­hold­ers, start­ing with ac­tivist fund Star­board which lob­bied for the strat­egy.

From hon­ey­moon to di­vorce

Af­ter slightly more than three years as Ya­hoo chief, the hon­ey­moon seems to be over for Mayer, who is the lat­est in a line of chief ex­ec­u­tives who have tried to re­store Ya­hoo to its for­mer glory. De­spite her lack of ex­pe­ri­ence run­ning a large In­ter­net firm, in­vestors em­braced Mayer as a young en­gi­neer with proven cre­den­tials at Google and a fash­ion­ably glam­orous im­age. She was wel­comed as a sav­ior af­ter Ya­hoo was eclipsed by Google and left to wither in its shadow.

Mayer made a pri­or­ity of tai­lor­ing Ya­hoo of­fer­ings to mod­ern mo­bile life­styles. On her watch, widely used prod­ucts such as Ya­hoo Mail were mod­ern­ized. Mayer also went on some­thing of a startup buy­ing binge, mostly us­ing Alibaba money be­ing pumped into Ya­hoo’s cof­fers, in ad­di­tion to launch­ing a se­ries of dig­i­tal mag­a­zines.

A promis­ing en­try by Ya­hoo into the fan­tasy sports games arena has caught the at­ten­tion of law en­force­ment of­fi­cials in New York. Ya­hoo was is­sued a sub­poena in an in­ves­ti­ga­tion into whether daily fan­tasy sports games vi­o­late gam­bling laws, sources close to the case said Thurs­day.

Like other fan­tasy sports sites, Ya­hoo al­lows par­tic­i­pants to se­lect play­ers for a vir­tual team and then use the real-world per­for­mance of the ath­letes to win prizes. The com­pa­nies claim they are games of skill rather than gam­bling oper­a­tions.

Count­ing Mayer’s days

An ar­ray of se­nior Ya­hoo ex­ec­u­tives have jumped ship in re­cent months, and some in­dus­try ob­servers ques­tion how much longer Mayer will re­main at the helm. A head­line ‘The last days of Marissa Mayer?’ topped an ar­ti­cle on Forbes mag­a­zine’s web­site Thurs­day. If Ya­hoo’s core busi­ness con­tin­ues to de­te­ri­o­rate, ‘there is a good chance that in 12 months from now, Marissa Mayer may not be there,’ SunTrust an­a­lyst Bob Peck told CNBC.

BGC Fi­nan­cial’s Gil­lis added that ‘it’s a dif­fi­cult busi­ness to turn around.’ ‘It’s a com­pany that fun­da­men­tally needs to be re­struc­tured, and it’s not her field of ex­per­tise.’ Sev­eral an­a­lysts, how­ever, con­tend that just re­plac­ing Mayer will not right Ya­hoo’s listing ship. ‘The job of the CEO is to in­no­vate; to out­smart com­pe­ti­tion, to in­vest,’ Global Eq­ui­ties an­a­lyst Trip Chowdhry told AFP. ‘It is not her job to find a way to dodge pay­ing taxes.’ Chowdhry saw Mayer as the right per­son for the job be­cause she un­der­stands the tech­nol­ogy. If some­one needs to go, Chowdhry rea­soned, it is chief fi­nan­cial of­fi­cer Ken Gold­man who is ‘not making the right de­ci­sion.’

Sil­i­con Val­ley an­a­lyst Robert En­derle faulted the Ya­hoo board, and not Mayer, for lack of turn-around mo­men­tum. ‘They knew she was go­ing to have a steep learn­ing curve and didn’t back her up well at all,’ En­derle said. ‘The right board likely could direct Mayer more suc­cess­fully and avoid the dis­rup­tion and cost of re­plac­ing yet one more CEO.’ — AFP

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