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Activist Starboard Looks for Total Control of Yahoo Board

Zacks Equity Research

With Mar 26 being the last day for filing nominations, there was some anticipation that activist investor Starboard Value LP would make such an announcement to take control of Yahoo’s YHOO board.

Accordingly, the activist hedge fund announced nine candidates on Thursday for election at Yahoo’s annual shareholders meeting in late June thus starting the proxy war.

Starboard cited Yahoo’s weak financial performance and Mayer’s failure to turn around the company as the reasons behind this decision. Since 2014, Starboard has been trying to join the board and work toward reforming the company but all its efforts have been thwarted.

In an open letter to Yahoo, Starboard CEO Jeffrey Smith wrote, “We have been extremely disappointed with Yahoo’s dismal financial performance, poor management execution, egregious compensation and hiring practices and general lack of accountability and oversight by the board.” Smith further added “We believe the board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders.”

In response, Yahoo stated that it will review Starboard nominated members and respond accordingly.

Starboard currently owns 1.7% of outstanding shares of Yahoo worth $570 million. State Street Corporation STT, BlackRock, Inc. BLK Vanguard Group and Fidelity Investments own a combined 16.2% of shares. Goldman Sachs owns another 4.2%.

Many analysts believe that if Yahoo fails to resist Starboard’s pressure and the nominations go to shareholder vote, all the index and mutual funds will take Starboard’s side.

The prospective members being considered by Starboard include Jeffrey C. Smith, managing member, CEO, and chief investment officer of Starboard Value; Debra A. Janssen, COO of Bankers Trust; Richard S. Hill, director of Arrow Electronics, Cabot Microelectronics, and Autodesk; Eddy W. Hartenstein , director at SanDisk, Sirius XM Holdings, Broadcom Ltd, and Rovi; Dale L. Fuller - chairman of the supervisory board of AVG Technologies, director of Quantum Corporation, and chairman of tech startup MobiSocial.

The list further includes names like W. Lance Conn, chairman of the compensation and benefits committee at Charter Communications; Brad W. Buss, director at Tesla Motors, CafePress.com, and Advance Auto Parts; Tor R. Braham, director at NetApp, Viavi Solutions, and Sigma Designs and Bridget L. Baker, director at telecommunications company General Communication.

In February, Yahoo launched an auction of its core Internet business that includes search, mail and news sites. Some Yahoo investors fear that the proxy fight will hamper the auction efforts as buyers will be concerned about a stable board and management team at Yahoo.

Currently, Yahoo is a Zacks Rank #3 (Hold) stock. A better choice for investors would be Alphabet Inc. GOOGL as it carries a Zacks Rank #2 (Buy).

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