Monday, September 14, 2009

CNBC: Does Carol Bartz Have a Credibility Problem?

By: Jim Goldman
Silicon Valley Bureau Chief

Yahoo CEO, Carol Bartz
Yahoo CEO, Carol Bartz

Last week was a tough one for Yahoo CEO Carol Bartz.

It began when she found herself in the crosshairs of the perennial burr under Yahoo's saddle, in investor Eric Jackson, who mounted a blistering campaign to unseat former CEO Terry Semel from his job, and then set his sights on Jerry Yang after the bungled, $40-plus billion dollar offer from Microsoft [MSFT 24.985 0.125 (+0.5%) ].

In an article he penned for, Jackson details some stunning insider selling at the company in a tome he titled "Yahoo's Pigs at the Trough," referring to the company's compensation plans as a kind of "personal ATM." Why the venom? Jackson found that insiders bought $67 million in Yahoo [YHOO 15.49 -0.10 (-0.64%) ] stock over the past years, but the vast majority of that was purchased by Carl Icahn (who sold a huge chunk - $189 million - over the past two weeks.) Take out the Icahn purchases and some small acquisitions by Chief Accounting Officer Michael Murray, and Yahoo insiders bought a paltry $103,700 in stock during the last two years.

Over the same period, insiders have "cashed out $233 million in stock," Jackson says.

The stock sales are telling and suggest, Jackson surmises, an executive team hardly putting their money where the mouths are, and the selling action is hardly a vote of confidence for the company.

As for Bartz, her well documented compensation package is front and center with all this: Within five months of being hired, Bartz cashed out $2 million in stock options she was awarded for taking the job. Her options are currently worth $16 million and she can sell them at any time. If shares reach $18, her package could be worth $40 million.

Bartz appeared on CNBC last Thursday and was asked about this in a cursory kind of way, to which she said she did so for "tax purposes," selling the stock to compensate for the tax bill she faced from the compensation package she received.

That did nothing to assuage Jackson who was galled by the fact that Bartz sold shares to cover her tax bill rather than using her own money to do so. Why dilute shareholders by selling stock into the open market to cover a tax bill connected to compensation so directly tied to the performance of that stock? It's a fair question that Bartz largely ducked. I sent a note to Yahoo seeking comment about Jackson's points and I didn't get a response.

But Bartz's appearance on Squawk raised another issue, centered on the company's investment in Alibaba, the Chinese search engine that has been an investment boon to Yahoo. Bartz was asked directly about this just four days ago on Squawk: Would the company sell its stake in Yahoo Japan? Would Yahoo sell its stake in Alibaba? Bartz said Japan adds revenue to the company, that it's a partnership and that "actually very much adds to our profit picture." Her answer on Alibaba was far more intriguing, especially with 20/20 hindsight.

"Alibaba is an investment. Frankly, when I first got here, I thought, 'Oh my gosh, we're not in China," she said. "Everybody's got to be in China. But we all know that China is a tough market to be in, especially media. And my firm believe is the Chinese government is much more interested in media companies being Chinese media companies. So I view this as a way to profit from the China internet market through Alibaba, so I view it frankly, as a very good investment for the future. We have no running power of Alibaba. That is, we have an investment only in them."

So, last week, the stake in Alibaba was absolutely intrinsic to Yahoo. Yet today, just a few short days later, we get word that Yahoo unloads a $150 million stake in the company. Yahoo still keeps its stake in the parent company, but the timing of the dot com sale is intriguing. I get the financials of it all: Yahoo paid $1 billion for a 40 percent piece of the Alibaba Group, which spun out its net operations in an IPO two years later that was right up there with Google's IPO frenzy. We know that a piece of Alibaba is worth something like $13 billion, so Yahoo's 40 percent stake has seen enormous return. That's good. What isn't good is that just a few days before a major stock sale, Bartz is touting Alibaba "as a very good investment for the future."

Jackson calls the timing "strange." And it is.

Look, I like Bartz, she's a great talker, a tough talker, and what I thought was a straight shooter. In her interview with CNBC, she said she hadn't sold anything, and that in fact she had re-acquired the Yahoo shares she sold. Yet there's only filings for her stock sales, and nothing indicating any purchases. And to tout Alibaba as a key investment for such a critical market for Yahoo and then just a few short days later unload $150 million worth of that same investment just seems awkward. I'm not drawing any conclusions here, nor am I making any accusations.

But Bartz ought to pay attention to these kinds of details and the way they're perceived. Her bold, aggressive personality trying to position Yahoo in the marketplace, rally the troops and generate new enthusiasm can certainly be effective; but there's another side to that sword, and saying one thing while doing another doesn't serve Bartz, Yahoo or their shareholders well.

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