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What Yahoo's peace agreement with Starboard means for sale

Daniel Roberts

Yahoo's new agreement with Starboard Value and its pugnacious CEO Jeff Smith is a peace treaty of sorts—and a step toward a sunnier sale of its core business.

The company, which owns Yahoo Finance, will add four of Starboard's picks to its board of directors, it announced on Wednesday. The new boardmembers are Tor Braham, a former Deutsche Bank exec, Eddy Hartenstein, who has worked at tech companies like Sirius XM and Broadcom and media companies like Tribune Company and Los Angeles Times Media, Richard Hill, of Tessera Technologies, and Starboard CEO Jeff Smith himself. Two existing Yahoo boardmembers, former Walmart CEO Lee Scott and former Ernst & Young exec Sue James, will not run for reelection.

Four of Yahoo's eleven directors will now be Starboard appointments.

So what does this mean? It pacifies Smith, for starters, but it also sends a message to shareholders that Yahoo is finally serious about a sale—it had previously been criticized by analysts for appearing less than fully committed to fielding offers.

Settling with Starboard is also a way of bringing the enemy inside the house.

"It's a public acknowledgment that Starboard had been publicly making some very valid points," says SunTrust analyst Robert Peck. "If you thought they were wrong, you wouldn't bring them in." Continuing to fight Starboard would have been damaging to public opinion, and also potentially to Yahoo's share price.

Peck sees two big benefits to the Starboard appointments: One is Smith himself, who famously sent a 300-page letter to Olive Garden management admonishing it to cut down on breadsticks, and whose involvement "underscores that a sale of the core is the priority," and two is that two of the Starboard picks are former CEOs, which Peck believes will be a strategic asset, "even if the core sale does not occur."

But what are the real chances of Yahoo not selling? Slim, analysts say. "It's possible, but highly improbable," Peck offers. "I think they've already started this core process, even Yahoo has embraced the idea of selling the core, and from what we hear, there are multiple bidders who want to make multi-billion-dollar offers. The fact that Yahoo was willing to settle also shows they thought Starboard had strong shareholder support."

That brings us back to the rumored buyers: Verizon (VZ), Alibaba (BABA), and a few others are all still in the mix, from an original pool widely exaggerated at 40 bidders, but if you ask Peck, "It's Verizon's to lose. They have the most synergies, the most cost overlaps, they can afford to pay the most because of those synergies. If Verizon decides it really wants it, it will get it."

Still, there is no guarantee that a single buyer will take the entirety of Yahoo's core business; it could also be chopped up like car parts. In a recent note, Peck and SunTrust wrote that Yahoo has three "hidden assets that are not well understood," including royalties from Yahoo Japan as well as 6,000 patents that could be worth far more than the $1 billion to $3 billion range the company has estimated. Someone could make a play just for the patents, or just for Yahoo Japan—a large number of possibilities remain, which means fevered speculation around this sale isn't going away any time soon.


Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.

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