Home / Technology / No Respite for Yahoo, Battling on 2 Fronts

No Respite for Yahoo, Battling on 2 Fronts

SAN FRANCISCO — It’s often hard to sell a company, particularly when that company has faced steady declines over the last decade, been surpassed by upstarts and is struggling in its latest turnaround plan.

It’s also hard to fight off an activist shareholder, especially a prominent hedge fund with a track record of ousting corporate boards.

Yahoo has the misfortune of trying to do both at once.

Even as the company has begun the process of potentially selling itself, contacting a wide swath of possible suitors, it has also been bracing for a potential battle with Starboard Value, the hedge fund that overthrew the entire board of Olive Garden’s parent company over a year ago.

Four investment banks have already been brought in to help manage the two processes after Yahoo called off an effort to spin out its stake in the Alibaba Group, the Chinese e-commerce giant, concerned that the move might make it liable for some $ 10 billion in taxes.

Starboard, one of the main proponents of abandoning the Alibaba spinoff, warned in January that the company needed to shake up its management and board along with its strategy, or face a potential board fight. Starboard now has until this weekend to name its slate of director candidates.

It’s unclear whether the two sides will settle before then, perhaps with Yahoo adding new directors to placate the hedge fund. The election of directors will take place at Yahoo’s annual meeting this spring.

For the company, the prospect of waging a battle against Starboard while it is running its sales process — which could also lead to the sale of between $ 1 billion and $ 3 billion worth of assets, including patents, real estate and noncore businesses — could hurt its efforts.

“People believe that it would be detrimental to the work we’re doing and it would not help our cause,” Kenneth Goldman, Yahoo’s chief financial officer, said in an interview.

But people close to Starboard, who spoke about the hedge fund’s deliberations on the condition of anonymity, said that the activist investor believed that without steady pressure, Yahoo might drag its feet in selling itself. Representatives for Starboard did not respond to a request for comment.

Others have echoed that fear. In a research note last month, Robert S. Peck, an analyst with SunTrust Robinson Humphrey, wrote that some potential bidders had noticed what he described as a “lack of engagement and process,” leading them to question whether Yahoo and its executives were serious in pursuing a potential sale.

And some potential bidders have also wondered how seriously the company is pursuing a sale of itself, remembering the failed discussions between Yahoo and Microsoft nearly a decade ago.

But Yahoo and its advisers argue that this time is different, and the company is serious. They point to the board’s having formed a special committee of directors tasked specifically with exploring a potential sale, with three investment banks — Goldman Sachs, JPMorgan Chase and PJT Partners — providing financial advice. (A fourth, Evercore Partners, is advising on defending against Starboard and other activist investors.)

Potential bidders — a group that ranges from telecommunications giants like Verizon and AT&T to private equity firms like Silver Lake and TPG — are being contacted and have begun signing nondisclosure agreements, according to people with direct knowledge of the process, who spoke on the condition of anonymity.

And more than a week ago, Yahoo added two new directors to its board, including a former Morgan Stanley investment banker and the former chief financial officer of Broadcom, who helped sell the chip maker last year. Those additions, the company has argued, show that it is serious.

Yet Yahoo announced those new directors hours before it was scheduled to meet with Starboard, and did not consult with the hedge fund before picking those names.

Such is the frenzy surrounding everything Yahoo these days that rumors have sometimes taken hold before being batted down. For instance, earlier this year news reports circulated that Frank Quattrone’s firm, Qatalyst Partners, had also been retained to help advise the company.

But Mr. Goldman told an industry conference this month that the only investment banks working for the company were those retained by the special board committee. He added in the interview that both he and Marissa Mayer, Yahoo’s chief executive, were committed to the company. He dispelled rumors that he was considering leaving the company, saying that he will be on board at least through the strategic review process.

Mr. Goldman also said that Ms. Mayer was not working with any outside party to make a buyout proposal of her own, despite rumors to the contrary.

Mr. Goldman contended that many of the investors he had spoken with backed Yahoo’s management and were wary of a proxy fight. “There are a lot of people who really believe in this company and want us to succeed,” he said.

As if selling Yahoo’s main business were not difficult enough, there is another possible wrinkle: Yahoo’s 35.5 percent stake in Yahoo Japan.

Yahoo received about $ 228 million from Yahoo Japan last year. While that’s a small portion of Yahoo’s nearly $ 5 billion in global revenue, the Yahoo Japan revenue, a mix of search payments and licensing payments, is almost pure profit, making up nearly one-quarter of Yahoo’s adjusted earnings before interest, taxes, depreciation and amortization.

About half the revenue from Yahoo Japan is from a search agreement that is due to expire in August 2017. That agreement can also be terminated early if control of Yahoo changes, according to a person with knowledge of the agreement, who gave confidential details on the condition of anonymity.

The other half of the income comes from a separate agreement in which Yahoo Japan licenses technology, Yahoo’s name and other assets. Yahoo Japan pays about 3 percent of its revenue to Yahoo under that agreement. SoftBank, which controls Yahoo Japan and owns slightly more of it than Yahoo does, has been unhappy with the arrangement and has sought to renegotiate the deal, without success.

Any serious bidder would probably seek to discuss all the financial arrangements with SoftBank to ensure that the flow of Yahoo Japan cash continued in some form.

Already, some potential suitors have begun contacting the Japanese company and its leader, Masayoshi Son, according to the person briefed on the agreement.

Continue reading the main story


NYT > Technology

Leave a Reply

Your email address will not be published. Required fields are marked *