Yahoo Investor Seeks to Replace Yahoo's Entire Board of Directors

Starboard Value Has Done It Before, at Darden Restaurants

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Starboard Value CEO Jeffrey Smith.
Starboard Value CEO Jeffrey Smith. Credit: Chris Goodney/Bloomberg

Yahoo investor Starboard Value nominated nine directors to the struggling web portal's board, which it contends has been mismanaged under Chief Executive Officer Marissa Mayer.

Starboard, an activist shareholder with 1.7% of Yahoo shares and a leading critic of the company, nominated its CEO, Jeffrey Smith, among others for election at Yahoo's annual meeting later this year, according to a letter to shareholders. If successful, the hedge fund's candidates could replace the incumbents on the board -- including the two that were added recently.

Starboard is one of the most prolific U.S. activist investors and has a track record of successfully pushing companies to heed its wishes. In 2014, Starboard persuaded investors to replace Darden Restaurants' entire 12-member board after the unpopular sale of its Red Lobster chain to Golden Gate Capital. Starboard also recently pressured office-supply rivals Staples and Office Depot into a merger.

EMarketer on Wednesday predicted that Yahoo's overall ad revenue will fall 13.9% in 2016 while Google and Facebook grow, and that Yahoo's share of the digital ad market will decline to 1.5%, from 2.1% in 2015.

With little progress to show for her revival efforts after more than three years, investors are losing patience with Ms. Mayer, who has presided over sluggish sales growth and failed to separate Yahoo's main web business from its multibillion-dollar stake in Alibaba Group Holding. Starboard first began to call for changes in 2014 and recently stepped up criticism of management, even as Yahoo said it would consider alternatives, including the sale of the company's core operations.

"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," Starboard said in a letter to shareholders Thursday. "We believe the Board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders."

For Ms. Mayer, who sits on the board, it's another difficult step in her tenure that began as a turnaround effort when she arrived in July 2012. In February, she rolled out her latest plan to overhaul the company, calling for employee cuts, product closures and other reductions to help drive efficiency and focus on growth opportunities.

Earlier this month, Ms. Mayer said she would do what's best for investors as Yahoo considers its strategic options and she would like to keep her job leading the company even if it changes hands.

"I certainly hope the strategic alternative has a place for me," she said in an interview on the "Charlie Rose Show." "But that said, we'll obviously honor our commitments to our shareholders."

Yahoo shares rose 1% in early trading in New York to $35.15. They have gained 4.6% this year.

Starboard held less than 1% percent of Yahoo stock at the end of 2015, according to data compiled by Bloomberg.

The fight with Starboard isn't Yahoo's first run-in with disgruntled activists. In 2012, Third Point LLC's Dan Loeb succeeded in getting himself and two nominees on the Yahoo board after tangling with former CEO Scott Thompson, who stepped down after failing to correct errors in his credentials. Later that year, Loeb was instrumental in getting Mayer to lead the company.

-- Bloomberg News with Ad Age staff

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