Thursday, December 06, 2007

WANTED: An Undervalued Company to Target with a Third "Plan B" Campaign

Last January, I launched a "Plan B" campaign against Yahoo! I was frustrated as the turtle's pace of change and consistent under-performance of the company in a boom-time market. I called on other Yahoo! shareholders to band together as one collective group -- hoping to have enough influence on the company as a larger activist hedge fund would, using their large stake to push the board and management for change.

We ended up as a group owning 0.2% of Yahoo!'s shares outstanding, but were able to have an impact. We drafted a "Plan B" for the company and invited input from our supporters and others through a wiki. The collective ideas were much more specific and useful than what any indiviudal could have come up with on his/her own. When management and the board rebuffed us (although they have always been polite and met with us a couple of times - to their credit), we beat the drum loudly and spoke to other large institutional shareholders asking them to vote "against" several directors at the June annual meeting (to express disapproval for the results of the company but also targeting directors who we felt were ready to move on and allow for new blood around the board table).

ISS gave us a full-page mention in their report in advance of the Annual Meeting in June and we also benefited from a lot of positive press covering the unique nature of our Internet-driven grassroots campaign to make a difference for shareholders. We raised some important questions at the Yahoo! annual meeting to the management and board.

Of course, we found out 2 months later when Yahoo! finally released the results of the vote, that each director on the Compensation Committee (Art Kern, Roy Bostock, and Ron Burkle) received at least 35% votes cast "against" them; all three still serve on the board, by the way. But all the remaining directors received historically high "against" votes (7 - 12% on average; instead of the normal 0.5 - 2%).

Terry Semel stepped down 6 days after the meeting in June and Jerry Yang was installed. Some have said he's moving too slow and not making the tough calls he needs to. I think he'll be successful in the long-term (although I too would like to see less bloat, less headcount, and more focus in Sunnyvale - and elsewhere). The company has still outperformed the S&P this year, although it pains me to look at the GOOG comparison. I think Yahoo!'s results would be far worse this year had we never acted and watched things unfold passively.

In July, I launched a 2nd "Plan B" campaign against Motorola. We received a lot more early interest and press coverage in this campaign. What helped is that -- two days after launching -- Motorola pre-annouced an abysmal Q2. (We did suspect it would happen, hence the timing of our announcement.) We also got tremendous input on the wiki for our Motorola "Plan B." I can't be certain, but it appeared we got huge input from current and ex-Motorola employees. That also happened in the Yahoo! campaign. It seemed that, in both situations, many people inside the companies were so upset with the organizational direction, but felt powerless to do something. If they complained up, they feared for their jobs. Lots of good people quit in those situations and strike out on their own. However, lots stay and are silent (grumbling with their co-workers in the cafeteria).

When an outsider appeared and allowed them to anonymously provide input and support for change -- which ultimately benefits workers who are also shareholders -- they jumped at it. And -- as I said before -- our outsider group was that much better informed on key issues and opportunities as a result of their support.

Last Friday, Ed Zander stepped down as CEO of Motorola. We'd called for this and several other changes there over these last 4.5 months. We are hoping that more changes consistent with our "Plan B" are forthcoming (although we said yesterday that we believe the best outcome now, given the company's situation, is a break-up).

The campaigns for change at Yahoo! and Motorola will continue. We're still shareholders wanting a positive return. We still believe these two companies have good upside. However, it's time to launch a third "Plan B" campaign.

We need to do it again: bring together passionate shareholders who believe that one company could do massively better than just keeping to the status quo. We'll work again as a virtual team. We'll let the best ideas rise to the top. We'll call on the board and management for change. We'll use our contacts with the press and large institutional investors to get our story out there and make our case for change. We can make a difference -- maybe this time more than ever.

We need your creative ideas on who should be next. There are lots of poor-performing companies out there. We need a poor-performing company where we can come up with and execute a plan for change. That's what "Plan B" is all about --> outsized positive shareholder returns in the long-term.

I look forward to hearing your thoughts in the coming days and weeks.

Sphere: Related Content