Thursday, January 11, 2007

Positive Press for "Plan B"

We've already received some great press coverage for our Yahoo! "Plan B."

David Neubert was the first to jump on this and has been very supportive. (Thanks, David.) In the recent polls we've put up, we've tried to address several of his points.

Yahoo (YHOO): Individual Activist May Shake Up Yahoo

This entry was posted on 9 Jan 2007, 6:49 PM and is filed under My Portfolio Trades,Finance,YHOO.

Sorry Warren Buffet, I still love you but Eric Jackson is my new investor hero. This guy is leading a campaign of individual investors from his blog to push for a restructuring of Yahoo (YHOO ) for the benefit of shareholders. In his blog and embedded video posted on YouTube Mr. Jackson describes a ten point plan to increase returns for shareholders and remind Yahoo Management who they work for. He then asks shareholders to either buy shares or use their current holdings and commit to vote them with his proposals.

This is shareholder activism at its most democratic level.

Congratulations Mr. Jackson, you are my new investing hero. Now if only you had $37 billion to commit to philanthropy.

The seven point plan is very reasonable:Mr. Jackson even proposes creating the plan in a wiki . That may be a bit far-fetched as an idea but I support his radical idealism. You never know what kind of shareholder democracy, added value and profits to shareholders may ensue.

1. Appoint Susan Decker CEO immediately; implement pay-for-performance for all YHOO execs going forward.
2. Restructure the board immediately with more active outside directors who own stock; 10 year term limits for directors should also be introduced.
3. Set up a special committee of the board to study and then articulate the company's vision/strategy and start executing it.
4. Step up the pace of the $3B stock repurchase plan announced in October 2006.
5. Begin a cash dividend immediately.
6. Reduce overlapping internal divisions (e.g., del.icio.us/MyWeb, Flickr/MyPhotos.)
7. Remove anti-takeover provisions which are not shareholder-friendly.

My comments on his plan:
1. Why Susan Decker as CEO? I would want to know what he means by pay for performance. He should probably explain that. I hope it has earnings and cash flow targets instead of just share price.
2. Amen
3. More Board involvement is better.
4. Amen.
5. Dividends instill discipline on management. But a small dividend. This company still needs to invest cash in growth.
6. Why has this taken so long?
7. Always a good idea.

I plan to support the proposal with my shares. I agree with most points and I'm happy to support the little guy.

Disclosures and Confessions: I own Yahoo and plan to pledge my shares to the campaign. However, if the shares rise above $35 I'm likely to start selling. I'm short Jan 2008 35 strike calls against half my position of YHOO and am also short Jan 2008 30 strike puts. I like Yahoo!. I use their email and use MyYahoo as my homepage. I make extensive use of Yahoo Finance . I also like their newsreader in yahooMailBeta. I also own Mr. Buffet's company Berkshire Hathaway. (BRK.A )

Disclaimer: Nothing in this blog is meant to be specific financial advice or a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult an investment professional familiar with your specific financial situation before buying or selling any security.

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Then, yesterday, we received some nice coverage from James Altucher in TheStreet.com's Daily Blog Watch. And, then a big article from Vishesh Kumar of TheStreet.com in the afternoon. Here it is below.

Thanks to everyone for their support and great comments thus far.

Yahoo! Holder Building a Dissident Nation
By Vishesh Kumar
TheStreet.com Senior Writer
1/10/2007 2:26 PM EST

One Yahoo! (YHOO - news - Cramer's Take - Rating) shareholder is mad and doesn't want to take it anymore.

Frustrated with the Internet giant's loss of more than one-third of its value in 2006, Eric Jackson wants to use the tactics of activist hedge funds -- like the recent high-profile ousting of Home Depot (HD - news - Cramer's Take - Rating) CEO Robert Nardelli by Relational Investors -- to spark a change at Yahoo!

But while Relational shelled out $1 billion for a 1.2% stake in Home Depot, Jackson doesn't exactly have the same financial muscle: He owns fewer than a thousand shares.

So Jackson is setting about recruiting like-minded individual investors in Yahoo! in what he hopes will amount to a virtual activist investor with so much buying power that the company will be forced to listen. He plans to use blogs, video blogs and wikis as his main arsenal.

Jackson already authors Breakout Performance, a well-known blog that offers keen analysis of developments at Yahoo! as well as a way for him to communicate with other investors. On Sunday, he added a short video clip outlining his position for the changes he would like to see at Yahoo! -- what he calls the company's "Plan B" -- to his site.

Far from dissident ravings, however, the plan stresses points that many investors have already been mulling in the wake of Yahoo!'s dismal performance. It ranges from replacing CEO Terry Semel with up-and-coming executive Susan Decker (who is widely seen as Semel's eventual successor) to scaling back its convoluted and often overlapping divisions (as was argued by a Yahoo! senior vice president in the widely circulated "Peanut Butter Manifesto.")

Jackson is presenting his Plan B in the form of a wiki -- a platform that lets many users collaborate -- much like the Wikipedia online encyclopedia. The plan is already benefiting from user input. One user said that the scope of replacement CEO candidates should be expanded beyond Decker, while another suggested that Yahoo! spin off its holdings in Yahoo! Japan, for example. (Yahoo! didn't immediately respond to a request for comment.)

But this far-flung group of individual investors will have to put their money where their collective mouth is are for the plan to really take off. Pooling their Yahoo! holdings -- and the associated voting power -- will give teeth to their vision. In fact, Jackson's goal is to cobble together a breathtaking 10% of Yahoo! stock -- a stake larger than that held by any institutional investor.

Such a target seems outlandish at first, but it's not impossible, Jackson argues. Yahoo! has 250 million registered users, and if 10% of those purchased 50 shares each and joined his group of vigilantes, it would more than exceed the goal. Bringing together 25 million users is still as daunting a task as they come -- but the group could still become a force to be reckoned with even if it controlled far less than a 10% stake.

Jackson, who says he has so far received enthusiastic feedback and commitments of about $1 million in Yahoo! stock, is further emboldened by the frustration he sensed among fellow Yahoo! shareholders since he first became critical of the company's management last fall.

"When I started posting about Terry Semel last fall, I was surprised at how strongly these [posts] seemed to register with people -- former employees, industry watchers, and just general Yahoo! users. The frustration was palpable," Jackson wrote in an email. "The sense was: this company has so many great assets ...why can't they get it together?"

The frustration is especially acute among current and former Yahoo! employees, many of whom still have stock options tied up in the company and had a front row seat for missteps. One former employee wrote that he or she found it "terribly hard to sit by and watch the current regime at Yahoo! destroy everything I and so many others worked so hard to build," according to Jackson. That employee added that "I still keep in touch with many ex-Yahoos, many of whom are still shareholders, and am willing to coordinate with them as well."

At first glance, Jackson seems an unlikely head of an attempt to pioneer a brazen new way for individual investors to make a dent on the strategy of a major Fortune 500 corporation. Anything but an obscure conspiracy theorist, Jackson heads up a consulting firm that counts major corporations such as General Electric (GE - news - Cramer's Take - Rating), JPMorgan Chase (JPM - news - Cramer's Take - Rating), Kraft Foods (KFT - news - Cramer's Take - Rating) and American Express (AXP - news - Cramer's Take - Rating) among its clients.

But what motivates Jackson is a sense of frustration with the status quo combined with a sense of what thoughtful corporate governance can accomplish. Most individual investors tend to throw away their votes, Jackson says, while this group has the potential to make a real difference.

"I'm tired of reading passive bloggers, commentators, and market watchers saying that 2007 should be a good year for Yahoo! because expectations are so low and Google (GOOG - news - Cramer's Take - Rating) can't keep growing at the pace it has over the last three years," he says. "Most people say that it is just easier to take your money out of Yahoo! and place a passive bet on Google. But I think there is more upside out of unlocking the value in Yahoo! than in Google."

Jackson's plan is ambitious, to say the very least. Generating a business plan for a major corporation in the same way that open-source movement produces software is audacious enough. Even if that were somehow accomplished, coordinating among a group of investors that large would be, if anything, even more of a challenge.

Still, the Internet provides an ideal platform for this venture. In recent elections, the very real sums of campaign contributions that came about as a result of small donors giving bits and pieces are testament to the hidden financial might that the medium can scrape together. Flash mobs -- groups of people who can rapidly coordinate for a purpose, either in one location or on a distributed basis -- also offer evidence of the Internet's ability to harness spread-out sentiment for collective action.

But Jackson's experiment will be worth watching even it falls short of its lofty goals. If the movement picks up some more momentum, Yahoo! management is sure to take note. He is also right in pointing out the potential of large, well-coordinated groups of individual investors -- and this group will play an increasingly important role in the future.

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2 comments:

David said...

Eric -- I'm inspired! What an awesome initiative. I'm off to watch your video and decide whether to join your cause.

Eric Jackson said...

Thanks, David. Cheers, Eric