Yahoo Co-Founder Yang Resigns

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Yahoo! Inc. (NasdaqGS:YHOO - News) announced the resignation of its co-founder Jerry Yang from its board of directors as well as other positions within the company. Yang will no longer be on the boards of Yahoo Japanor Alibaba Group Holding Ltd.

The 43 year old Jerry Yang, who served the company for more than 17 years, resigned at a time when the company is struggling to compete with Google Inc. (NasdaqGS:GOOG - News) and Facebook Inc. for online users and advertising dollars.  The company’s announcement comes on the heels of the recent appointment of Scott Thompson as the new chief executive officer after a rigorous search of 4 months.

A few months back, Daniel Loeb, a principal shareholder (5.2% stake in Yahoo through the Third Point LLC fund), had called for the resignation of Mr. Yang and several other members of the board. In 2008, Yang had turned down Microsoft’s bid when the company was valued at around $47.5 billion by the software giant.

Currently, the company's valuation is languishing at nearly half of Microsoft’s offer value, which is an obvious reason for the shareholders to question the higher decision making authorities. Soon after the company’s co-founder announced his departure from its board, Yahoo's stock spiked 3% to $15.90 in after-hours trading.

Ever since the company fired its CEO Carol Bartz in September 2011, Yahoo! disclosed its plan of forming a strategic review committee, to look into the aspects of either selling the company wholly or partly. Yahoo received two separate partial investment proposals from Silver Lake Partners and TPG Capital, but the poor pricing made the shareholders unhappy. AT&T Inc. (NYSE:T - News), News Corp. (NasdaqGS:NWS - News) and Verizon Communications Inc. (NYSE:VZ - News) were also interested in buying the company.

Though Thompson’s appointment could potentially seal the door for any further sale of the company as a whole, the possibility of Yahoo! divesting its stake in Alibaba, a Chinese e-commerce company, as well as a sizeable share in Yahoo Japan, brightens. Despite being one of the biggest brand names, Yahoo has performed very poorly in the last few years.

The social networking sites of Facebook and Google have been consistently eating into Yahoo's market share over the years. Hence, to combat the crisis, Thompson needs to take some tough decisions of reinvesting in new initiatives to restore Yahoo’s position, as well as shareholders' confidence.

In December 2011, Yahoo had revisited a proposed deal to reduce its stake in the Chinese e-commerce company Alibaba Group Holding Ltd. and sell its Asian assets so that it could concentrate on its U.S.business. However, the Chinese Internet company Alibaba is desperately trying to get back the stake held by Yahoo! so as to prevent its falling into other hands.

The remaining nine members of Yahoo's board, which includes Hewlett-Packard (NYSE:HPQ - News) executive Vyomesh Joshi and private investor Gary Wilson, are all geared up for re election this year. Yahoo has seen imited growth for quite some time, hence a complete overhaul of the leadership is required to change the fortunes of the company.

Yahoo shares carry a Zacks #3 Rank, implying a Hold rating in the near term (1-3 months).

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