Star­board launches proxy fight to re­move en­tire Ya­hoo board

The Pak Banker - - COMPANIES/BOSS -

Ac­tivist hedge fund Star­board Value LP moved on Thurs­day to over­throw the en­tire board of Ya­hoo Inc (YHOO.O), in­clud­ing Chief Ex­ec­u­tive Marissa Mayer, who has strug­gled to turn around the com­pany in her nearly four years at the helm. Star­board, which has been push­ing for changes at Ya­hoo since 2014 and owns about 1.7 per­cent of the com­pany, said it would nom­i­nate nine can­di­dates for the board.

The proxy fight comes as Ya­hoo is press­ing ahead with an auc­tion of its core In­ter­net busi­ness, which in­cludes search, mail and news sites. The faded In­ter­net pi­o­neer has been strug­gling to keep up with Al­pha­bet Inc's (GOOGL.O) Google and Face­book Inc (FB.O) in the bat­tle for on­line ad­ver­tis­ers. Ya­hoo said in a state­ment it will re­view Star­board's nom­i­nees and re­spond in due course.

Ya­hoo and Star­board could still come to an agree­ment be­fore the com­pany's an­nual meet­ing, ex­pected to be in late June. If they can­not avoid a proxy fight and the Ya­hoo board elec­tion is taken to a share­holder vote, at­ten­tion will swing to the large mu­tual and index funds that own the stock and will carry heavy weight in the fi­nal tally. "We think ev­ery­one get­ting into the stock over the past six months, and most of those eas­ing their way out, will all side with Star­board," said Don Bil­son, head of event-driven re­search at Gor­don Has­kett, an in­de­pen­dent re­search firm.

Black­Rock Inc (BLK.N), Van­guard Group, State Street Corp (STT.N) and Fi­delity In­vest­ments own a com­bined 16.2 per­cent of Ya­hoo shares, ac­cord­ing to Thom­son Reuters data, with Gold­man Sachs own­ing an­other 4.2 per­cent.

Ya­hoo co-founder David Filo - one of the board mem­bers Star­board wants to re­move - is the com­pany's largest share­holder with a 7.5-per­cent stake. Ya­hoo and Star­board rep­re­sen­ta­tives met on March 10 to dis­cuss ways the two sides could avoid a proxy fight, ac­cord­ing to peo­ple familiar with the mat­ter [nL2N16C2B1]. But those talks broke down, in part be­cause Star­board was up­set by Ya­hoo's an­nounce­ment that same day that it ap­pointed two new board direc­tors, these peo­ple say.

"We have been ex­tremely dis­ap­pointed with Ya­hoo's dis­mal fi­nan­cial per­for­mance," Star­board said in its lat­est let­ter to Ya­hoo, adding that its need to of­fi­cially launch a proxy fight was "un­for­tu­nate." Star­board said it re­mained open to dis­cus­sions with Ya­hoo and was hope­ful that it could reach an agree­ment to get in­volved with the com­pany.

Given that Star­board is propos­ing nine new direc­tors, a set­tle­ment prior to the an­nual meet­ing would fo­cus on whether or not Ya­hoo is will­ing to give up con­trol of the board.

Some Ya­hoo in­vestors are con­cerned that a proxy fight could hin­der the auc­tion ef­fort, since a buyer would want to know if a sta­ble board and man­age­ment team is in place be­fore putting in an of­fer, sources have said.

Star­board said in its let­ter that one rea­son for its de­sire to shake up the board is to en­sure that the core busi­ness is prop­erly sold, adding that it was con­cerned with how the process was go­ing so far.

"The same man­age­ment team and Board that has failed share­hold­ers for years wants share­hold­ers to en­trust them with one of the most cru­cial de­ci­sions yet to be made," Star­board founder Jef­frey Smith wrote in the let­ter, re­fer­ring to the auc­tion of the core busi­ness.

Ya­hoo's shares, which have fallen about 22 per­cent in the past 12 months, were down 0.9 per­cent at $34.49 in early trad­ing on Thurs­day. They were trad­ing around $40 when Star­board first launched its Ya­hoo cam­paign, where the hedge fund ad­vo­cated for Ya­hoo to merge with AOL, now owned by Ver­i­zon.

Ya­hoo launched an auc­tion of its core busi­ness in Fe­bru­ary af­ter it shelved plans to spin off its stake in Chi­nese e-com­merce giant Alibaba Group Hold­ing Ltd (BABA.N).

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