NEW YORK–Large shareholders are doubting Yahoo’s commitment to selling its core Web assets, raising the specter of a contest for board seats if investors’ fears are confirmed.
Amid pressure from activist hedge fund Starboard Value, the online search and media company Wednesday said it will cease controversial plans to spin off its $32 billion stake in e-commerce company Alibaba.
Yahoo’s stock rose after the new plan was announced before the start of trading Wednesday. But it gave up those gains after CEO Marissa Mayer and Yahoo Chairman Maynard Webb downplayed their focus on a sale of Yahoo’s Web assets.
“The board has made no determination that the company is for sale, or any part of it is for sale,” Webb told CNBC’s David Faber. “We believe that we are significantly undervalued and we believe that the best way to unlock that value is by continuing to focus on the turnaround of our operating business and better execution there,” Webb said.
Yahoo’s shares (YHOO) dropped almost 5% during mid-day trading before closing down 1.3% to $34.40 a share.
One large shareholder, who asked not to be identified due to firm policy, attributed the stock decline to the board’s failure to commit to a sale of core assets, even if it means taking a tax hit — as well as a lack of confidence in Mayer’s ability to turn the business around.
If Yahoo can’t drum up support for its latest plan, the board — already under fire for a falling stock and shrinking market share — could be at risk for a proxy contest, experts said.
Yahoo’s entire board comes up for re-election next summer, and the period for outsiders to nominate opposing directors ends in March. Starboard’s CEO Jeff Smith has successfully battled for board seats at other companies, such as Darden Restaurants, the owner of Olive Garden.
Starboard and other investors have said they would like to see Yahoo place its core web assets on the auction block, tax implications be damned.
Rather than stressing a sale or auction of units, Yahoo executives Wednesday suggested they would focus on a tax-free spinoff of its Web assets into a new company — a plan that would exactly mirror the Alibaba spinoff plan. Such a plan could take a year to unfold, delaying a sale of assets.
Webb told CNBC that the board would “engage with any legitimate person that comes forward with a good offer.” But, he added: “We are not proactively trying to do any of that. We remain focused on our operating business being turned around and separately out the Alibaba assets,” through a reverse spin-off that would leave Alibaba asset where they are and spin off everything else, forming two publicly traded companies.
Citigroup analyst Mark May downgraded Yahoo’s stock Wednesday on the complexity and timeline of the plan. “Given the lack of a near-term catalyst and the risk to the execution of such a deal, we downgrade [the] shares,” May said in his research report.
Investors will be looking for a sign from management at its fourth-quarter earnings announcement in January, said Stephen Diamond, a professor at Santa Clara University’s School of Law. “There remains lingering doubt about the board’s inability to execute what they say they are going to do,” Diamond said.
Of course, some watchers have warned that a sale of Yahoo’s core assets may not be easy.
Japan’s Softbank is not interested in buying Yahoo, despite recent reporting suggesting otherwise, according to a person who has spoken to the finance and telecoms conglomerate, but declined to be identified because the person was not authorized to do so. Softbank did not immediately return a request for comment.
This person also expects some bidders will wait until after Yahoo releases its fourth quarter earnings to make a bid because it will be cheaper to buy if Yahoo misses earnings projections.
Wall Street analysts have suggested names of potential buyers could also include telecom company AT&T and news organization News Corp. Verizon CEO Lowell McAdams, which bought Yahoo competitor AOL earlier this year, said at a Business Insider conference that the telecom giant would look at Yahoo if it were up for sale.
Not all shareholders are concerned about waiting for a tax-free spin off to yield a potential sale.
“So what if you have the spin-off and have a decision [about a sale] in a year?” said Josh Strauss of Appleseed Fund, which is invested in Yahoo. “It’s not the end the world,” he said.
Contributing: Jessica Guynn.
Follow USA TODAY reporter Kaja Whitehouse on Twitter: @kajawhitehouse
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