USA TODAY International Edition
DOUBTS OVER SPINOFF PLAN RAISE SPECTER OF PROXY WAR
Large shareholders are doubting Yahoo’s commitment to selling its core Web assets, raising the specter of a contest for board seats if investors’ fears are confirmed.
Amid pressure from activist hedge fund Starboard Value, the online search and media company Wednesday said it will cease controversial plans to spin off its $ 32 billion stake in e- commerce company Alibaba.
Yahoo’s stock rose after the new plan was announced before the start of trading Wednesday. But it gave up those gains after CEO Marissa Mayer and Yahoo Chairman Maynard Webb downplayed their focus on a sale of Yahoo’s Web assets.
“The board has made no determination that the company is for sale, or any part of it is for sale,” Webb told CNBC’s David Faber. “We believe that we are significantly undervalued, and we believe that the best way to unlock that value is by continuing to focus on the turnaround of our operating business and better execution there,” Webb said.
Yahoo’s shares ( YHOO) dropped almost 5% during midday trading before closing down 1.3% to $ 34.40 a share.
One large shareholder, who asked not to be identified due to firm policy, attributed the stock decline to the board’s failure to commit to a sale of core assets, even if it means taking a tax hit — as well as a lack of confidence in Mayer’s ability to turn the business around.
If Yahoo can’t drum up support for its latest plan, the board — already under fire for a falling stock and shrinking market share — could be at risk for a proxy contest, experts said.
Yahoo’s entire board comes up for re- election next summer, and the period for outsiders to nominate alternate shareholders ends in March. Starboard’s CEO Jeff Smith has been known successfully to battle for board seats at companies such as Darden Restaurants, the owner of Olive Garden. Starboard and other investors have said they would like to see Yahoo place its core Web assets on the auction block.
Rather than stressing a sale or auction of units, Yahoo executives instead Wednesday suggested they would focus on a tax- free spinoff of its Web assets into a new company — a plan that would exactly mirror the Alibaba spinoff plan. Such a plan could take a year to unfold, delaying a sale of assets.
Webb said on CNBC the board would “engage with any legitimate person that comes forward with a good offer.” But, he added: “We are not proactively trying to do any of that. We remain focused on our operating business being turned around and separating out the Alibaba assets,” through a reverse spinoff that would leave Alibaba assets where they are and spin off everything else, forming two publicly traded companies.
Citigroup analyst Mark May downgraded Yahoo’s stock Wednesday, citing the complexity and timeline of the plan.