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Yahoo: Mayer Vs. The World

Summary

Mayer, Yahoo's CEO, has long been resistant to shareholder demands for drastic change.

She has finally put the business up for sale, but at the same time introduced a questionable restructuring plan.

Recent appointment of two directors without engaging Starboard just upped the tension another notch.

All signs point to a proxy fight in the summer, which we don't think will work out in Mayer's favor.

Something needs to happen before then, and the next few weeks or months will be interesting.

Context

Recruited to the helm from Google in 2012, Yahoo's (NASDAQ:YHOO) CEO Marissa Mayer was once a beacon of hope for the struggling internet company after years of mismanagement. Under her leadership, shares of Yahoo improved dramatically, although analysts have noted that was more because of investors' enthusiasm over its stake in Chinese internet company Alibaba (NYSE:BABA) than about Yahoo's core business, which had been underperforming for years.

That statement appears to be accurate. Yahoo's share price soared in the months leading up to Alibaba's September 2014 IPO, only to decline drastically from 2015, tracking BABA closely:

With a market cap of $33bn, much of Yahoo's market value is tied to its stake in Alibaba. The company owns 384 million shares in the Chinese company, which at yesterday's closing price of $74.25 was worth $28.5bn, or 86% of the current Yahoo.

To improve its flagging share price, Yahoo had originally planned to spin-off its stake in Alibaba, but ultimately decided against it last year after the IRS indicated that it would not rule on the proposed spin-off, creating uncertainties on whether it would be a tax efficient transaction. That meant Yahoo had to seek alternatives.

Under Activist Pressure

Fed up with the Yahoo's continued underperformance, activist hedge fund Starboard Value wrote to Yahoo in January and threatened to replace its management to achieve the drastic change it...


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