Disgruntled Yahoo Investors Suggest Different Paths Forward

Two Yahoo investors, acting independently, have publicly called for radical changes or a potential sale of the firm.

Both Canyon Capital Advisors and SpringOwl Asset Management apparently were unappeased by last week’s announcement that Yahoo would spin off its core Internet business.

Canyon Capital Advisors on Friday sent a letter to Yahoo Chairman Maynard Webb, urging the company to find a buyer for its core Internet businesses or to sell the company outright, as The Wall Street Journal first reported.

The letter chides the board for a lack of independence from top management, rebuffing CEO Marissa Mayer (pictured above), who wants another year to turn things around at the struggling company.

“We do not understand the Board’s continued support of the Company’s senior management team, given its track record, its failure to increase value for shareholders and the recent spate of executive departures from the Company,” Canyon Capital officials wrote.

Canyon Capital is not alone in calling for a sale. Jeffrey Smith, managing member of Starboard Value, last month fired off a letter to Yahoo, urging the company to consider a plan to sell its core business.

Taking a different tack, SpringOwl Asset Management this weekend sent the board a 99-page presentation calling for a radical overhaul of the firm, including workforce reduction of 9,000 and the replacement of Mayer.

Mayer, who gave birth to twins just a day after announcing the spinoff plan, has been the target of criticism for failing to keep up with changes at Google and Facebook, among other things.

Transition to Mobile

Among the recommendations in the SpringOwl plan: Yahoo should reduce its headcount to about 3,000 employees; it should get rid of Mayer, who failed to properly transition the company from a desktop to mobile Internet-focused company; and it should bring in Liberty Media on its board to help unlock value with a better tax analysis of the Alibaba and Yahoo Japan stakes.

The plan also calls for the sale and partial leaseback of Yahoo’s Sunnyvale campus, which measures 1 million square feet and has US$1.5 billion to $1.8 billion in underlying land and office space value.

Yahoo should focus on its highly respected sports and financial news content, the plan suggests, it should milk its PC-based revenue, which accounts for 80 percent of overall revenue.

Too Little, Too Late

“What Yahoo may be going through is the case of a board that is rethinking some previous decisions that may have proven unrealistic and out of line with the actual needs of the company,” said Susan Schreiner, an analyst at C4 Trends.

“Many businesses that were flying high several years ago are remaking themselves and forging various forms of creative dealmaking,” she told the E-Commerce Times, citing HP’s recent split as an example.

“These are complicated transactions in complex times, and perhaps Yahoo’s board might be taking a time-out while it figures out its next moves and ways to maximize shareholder value,” Schreiner said.

Yahoo would be a “tough nut to crack” for any management company, observed Kevin Krewell, a principal analyst at Tirias Research.

The best option right now likely would be a complete breakup of the company or an outright sale, he told the E-Commerce Times.

“The strategic problem for Yahoo is that it doesn’t know which direction to turn — content provider, search engine, social media site etc.,” Krewell said. “It has elements of each, but no defining character to stand out against Facebook, Google, YouTube and a myriad of content providers.”

The only alternative to an outright sale or breakup of the company would be a radical restructuring of the firm around a single focus — such as a social media outlet, a content provider or a search engine, he suggested.

Since the Yahoo board began to consider a change, all of the above options have been on the table, according to Rob Enderle, principal analyst at the Enderle Group.

“Right now, the company looks incredibly weak,” he told the E-Commerce Times. “They started with a poorly thought-through plan to sell the Alibaba stock to raise money and fund the turnaround. That [later] became a plan to spin out the core assets, leaving a firm with just the Alibaba stock and no money.”

Yahoo’s top executives basically are working from a place where many investors consider them “insane” because they have no consistent strategy, said Enderle. To those investors, the solution is to replace Yahoo’s current management team, and let new leaders start over with a clean slate.

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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