For months, Yahoo and its executives have faced mounting criticism and calls for action as the sprawling technology company has fumbled to figure out a plan for its Internet business. The latest, and perhaps the strongest, charge comes from Starboard Value, an activist investing firm that owns a stake in Yahoo, which sent a letter Wednesday to C.E.O. Marissa Mayer, chairman Maynard Webb, and the remainder of the company’s board suggesting that it may vote to oust them.
The letter poses a choice to Yahoo’s management and board, which has been struggling with what to do with its core business and its stake in Chinese e-commerce giant Alibaba in the wake of weak growth and tumbling stock prices. Jeffrey Smith, Starboard’s managing member, didn’t mince words: either shift direction and agree to new management, or face the possibility that they could be unwillingly replaced.
“It appears that investors have lost all confidence in management and the board,” he wrote. “If the board is unwilling to accept the need for significant change, then an election contest may very well be needed so that shareholders can replace a majority of the board with directors who will represent their best interests and approach the situation with an open mind and a fresh perspective.”
The warning comes just a month before Yahoo’s proxy season is set to begin, during which investors have the chance to nominate new directors. Since Mayer took over the company in 2012, sales have shrunk and spending has increased. Yahoo’s stock tumbled 35 percent last year. Last month, Mayer gave birth to identical twin girls.
“Despite over three years of effort and billions spent on acquisitions, the management team that was hired to turn around the core business has failed to produce acceptable results, in turn, causing massive declines in profitability and cash flow,” the letter reads.
Starboard called for Yahoo to sell its core business, for which it wrote there are “interested and credible buyers.” Along with the significant changes the company “desperately need[s],” Starboard reiterated that management must turn over along with it.
The hedge fund’s letter is just one among a slew of calls urging the company to make a major shake-up. Last month, hedge-fund investor Eric Jackson submitted a 99-page turnaround plan to the company, in which he called to replace Mayer, dramatically cut back on head count, and put a stop to reckless spending, such as a $7 million Great Gatsby–themed soiree and a $70,000 photo shoot where executives dressed up as characters from The Wizard of Oz. Starboard itself has sent the board a series of letters over the last year, first suggesting it merge with AOL and later asking Yahoo to abandon its plan to spin off its Alibaba shares. Last month, the company agreed, announcing it was dropping its plan to spin off its stake in Alibaba, saving the company from paying a massive tax bill.
Jackson has since come up with a short list of replacements for Mayer, which he posted on Medium last week. “Mayer came in to the Yahoo CEO job when it expressly needed focus, shrinkage for profitability (and more focus), and smart bets on a future for the company,” he wrote. “Instead, Yahoo got free food, lavish parties, and a little bit of daily habits, a little bit of digital magazines, and a little be of NFL football.” His suggested replacements include CBS Interactive’s Jim Lanzone, Yahoo’s former interim C.E.O. Ross Levinsohn, Square’s Jackie Reses, Shazam’s Rich Riley, and Chegg’s Dan Rosensweig, all of whom Jackson said have close ties to Yahoo and understand its business.
“I’m sure there are other capable candidates there. There are a lot of people there who have ties to Yahoo, and that’s probably a plus,” Jackson told VF.com on Wednesday. “For someone to come in as an outsider, there’s a greater chance of making a ham-handed move.”
As for Starboard’s letter, Jackson welcomed the increased pressure it put on the company.
“I think the board really does need to be called out. [Starboard’s] saying, ‘You need to be much more serious about the house that’s burning down in front of you,’” he said. “We both agree about the source of the problem, which is the board and the executives.”
New Establishment List 2015
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