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Yahoo Agrees to Give 4 Board Seats to Starboard Value Yahoo Agrees to Give 4 Board Seats to Starboard Value
(about 11 hours later)
SAN FRANCISCO — Yahoo, the embattled Internet giant, has reached a deal with the activist hedge fund Starboard Value to give it four seats on the Yahoo board, including one for Starboard’s chief executive, Jeffrey C. Smith, the company announced early Wednesday. SAN FRANCISCO — For over a year and a half, Yahoo has been tormented by a prominent activist investor who has criticized virtually everything about the company, from its business strategy to its efforts to sell major assets.
Two existing members of the board will not stand for re-election, meaning that the new board will have 11 members, four of whom are allied with Starboard. Now that hedge fund, Starboard Value, is finally getting a seat at the embattled Internet company’s table, heading off a potentially distracting fight and perhaps easing the way for a potential sale of its core business.
For the last few months, Yahoo has been searching for a buyer for its core business, which has continued to deteriorate despite four years of efforts by its chief executive, Marissa Mayer. Yahoo said on Wednesday that it had given four director seats to Starboard, ending the activist investor’s campaign to unseat the company’s entire board. One of those seats will go to Starboard’s chief executive, Jeffrey C. Smith, who will also join a special board committee overseeing the company’s sale process.
The first round of bids were due last week, with Verizon Communications viewed as the lead contender. Some potential bidders, however, had privately expressed frustration with the sale process, saying that the company was reluctant to share financial information. “We look forward to getting started right away and working closely with management and our fellow board members with the common goal of maximizing value for all shareholders,” Mr. Smith said in a statement.
A day after the deadline, Yahoo reported weak quarterly earnings, and Ms. Mayer told investors that the board and management would proceed to vet the bids at the “fastest responsible pace.” The move may let Yahoo focus more on its sales efforts while also quieting one of the company’s biggest and most persistent gadflies, since Starboard must now refrain from public criticism. The company had engaged two sets of bankers over the last several months: some to run defense against Starboard, others to supervise the auction.
Starboard has been pushing hard for a sale, and it had proposed an alternative slate of directors to replace the current board at the next shareholders’ meeting this summer if Yahoo did not proceed with a deal. Mr. Smith will join the strategic review committee of the board that is reviewing bids or other alternatives for Yahoo’s assets. Giving those seats to Starboard may also remove some additional doubts about the seriousness of Yahoo’s intent in exploring a sale, a process that several people involved have described as messy and confusing. The hedge fund had latched on to those concerns as part of its activism campaign.
With the agreement on the four board seats, Starboard has agreed to withdraw its slate of candidates. As part of the settlement, two existing directors will step down, leaving the board at 11 members. Coupled with the two new directors appointed by Yahoo last month, more than half of the company’s board will be new this year.
In a statement, Mr. Smith said, “We look forward to getting started right away and working closely with management and our fellow board members with the common goal of maximizing value for all shareholders.” The other new additions to the board are Tor R. Braham, a former technology investment banker at Deutsche Bank; Eddy W. Hartenstein, a director of Tribune Publishing and former chief executive of The Los Angeles Times; and Richard S. Hill, chairman of Tessera Technologies.
In addition to Mr. Smith, the other new directors are Tor R. Braham, former head of mergers and acquisitions for Deutsche Bank; Eddy W. Hartenstein, former chief executive of the Tribune Publishing Company; and Richard S. Hill, chairman of Tessera Technologies. At the same time that a settlement has been reached, Yahoo and its board are still combing through the preliminary bids received last week. Among them were proposals from Verizon Communications, seen as the early leader in the sales process, and from investment firms like TPG Capital, Silver Lake and a consortium led by Bain Capital and Vista Equity Partners.
“The additional board members will bring valuable experience and perspectives to Yahoo during this important time for our company,” Maynard Webb, Yahoo’s chairman, said in a statement. Removing Starboard’s threat of a board fight might mean that Yahoo no longer feels compelled to complete its sales process before its next annual shareholder meeting. The agreement with Starboard says Yahoo must hold its meeting by June 30. Still, company executives have expressed confidence in the speed of the process, and Mr. Smith is likely to keep pressing for a timely conclusion.
The two directors who will not seek re-election are Lee Scott, the former chief executive of Walmart, and Sue James, a former partner at the accounting firm Ernst & Young. Hopes for a deal have helped lift Yahoo’s stock price more than 11 percent so far this year. But investors largely shrugged off the agreement on Wednesday, and shares closed down 0.43 percent.
Yahoo has a history with activist investors. In 2012, the Third Point hedge fund, led by Daniel Loeb, pushed for the ouster of Yahoo’s chief executive at the time, Scott Thompson, gained control of the board and chose Ms. Mayer to turn the company around. For investors, little matters more now than whether Yahoo can find a buyer for its core Internet business, including its huge sports, finance and mail arms. A weak quarterly earnings report last week, in which sales fell 11 percent, underscored the continuing troubles that have plagued the company.
In early trading, shares of Yahoo were up slightly. Despite its huge presence in the early days of the web, Yahoo has steadily lost ground to newer competitors like Google and Facebook, leaving it to grasp for solutions to turn around its business. A succession of chief executives, the latest being the Google veteran Marissa Mayer, have failed to find an effective answer.
That has drawn a number of activist investors over the years that have sought to shake up the company. Before Starboard it was Third Point, the firm run by the billionaire Daniel S. Loeb, who successfully ousted Ms. Mayer’s predecessor and called for the hiring of the Google engineer.
But Ms. Mayer’s various initiatives have not panned out. In September 2014, Starboard — a roughly five-year-old firm with a growing reputation as a successful activist investor — emerged, leading with criticism of the company’s strategy.
Starboard and Mr. Smith later added criticism of how Yahoo planned to sell its remaining stake in the Alibaba Group of China and, eventually, Ms. Mayer’s overall performance, to their complaints.
Little love has been lost between the two sides in the last year and a half, with Ms. Mayer believing Starboard to be a nuisance and disrespectful and Mr. Smith publicly calling for the ouster of Yahoo’s board. The relationship took a further hit last month when Yahoo filled two board seats hours before the company was set to sit down with Starboard.
But both sides continued to work on reaching a settlement, which has become more and more common in corporate America as companies and activists alike seek to avoid the expense and uncertainty of running a full-blown proxy fight.
While corporate boards initially viewed such rabble-rousers as threats to be fought, they have increasingly opened up and offered director seats to end hostilities.
Starboard won seats on Wednesday not only at Yahoo but also at Marvell Technologies, a chip maker that the hedge fund had fought against for only a few months. At Marvell, the activist investor won four board seats and will have a say in the selection of the company’s next chief executive.
Some on the receiving end of Starboard’s campaigns have eventually formed cordial relationships with the hedge fund. One of the new Yahoo directors who had been proposed by Starboard, Mr. Hill, was on Tessera’s board when that company battled against the activist investor three years ago.
The alternative could be far worse. Starboard, for instance, ousted the entire board of Darden Restaurants, the parent of the Olive Garden chain, after rallying fellow investors unhappy with the company’s financial performance.
“This constructive resolution will allow management and the board to keep our focus on our extremely important objectives,” Ms. Mayer said in a statement on Wednesday. “Management is looking forward to working with the entire board, including the new directors, to maximize shareholder value.”
Giving activist investors a role in the boardroom also helps to silence them, since such settlements — like the one at Yahoo — include nondisparagement clauses that prohibit these firms from publicly criticizing their companies.