Friday, June 15, 2007

The Daily Deal: Yahoo! Vote Looms

From Monday's The Daily Deal (before the Yahoo! AGM):

by Ron Orol in Washington

Posted 04:20 EST, 11, Jun 2007

Small-time activist investor Eric Jackson may lose his proxy campaign to oust Yahoo! Inc.'s CEO Terry Semel from the information portal's board, but his multimedia tactics, which include a blog and YouTube videos of himself, are being talked about as harbingers of investor revolts.

"Eric Jackson is at the vanguard of shareholder activism," said Anne Faulk, CEO of Swingvote LLC in Atlanta.

Jackson, a small investor of Yahoo!, launched a "just vote no" campaign to persuade shareholders of the widely used Santa Clara, Calif.-based portal to expel Semel from his chairmanship along with six others on the company's 10-person board. Yahoo!'s annual shareholders meeting is Tuesday, June 12.

What makes Jackson's campaign unique is his use of the latest digital platforms to get out his message. Jackson uploaded to YouTube a streaming video of himself outlining his grievances with the company. He also set up a blog, "Breakout Performance," a account and a LinkedIn Web site to spread dissent.

Jackson said he was inspired by the activist campaigns of Carl Icahn as well as Ned Lamont's successful bid to defeat Sen. Joe Lieberman in the 2006 Connecticut Democratic primary. Lamont took advantage of Internet bloggers and Web-based social-networking sites to win the primary contest. (Lieberman ultimately retained his Senate seat by winning the general election as an Independent.) Jackson said his initiatives also are mirrored on the pressure campaigns used by Icahn and other high-profile hedge fund activists.

In his Web videos and blog, Jackson argues that Semel is receiving an overly generous pay package in spite of stagnant company share performance. Another irritant: Google Inc.'s investors have enjoyed a 333% increase in stock price during the past three years while Yahoo! investors have watched their shares drop by 8%.

The Web campaign has generated a stir among Yahoo!'s retail investors. So far about 80 have pledged to support Jackson's "just vote no" campaign. It's a tiny portion of the shares; together they represent roughly 2 million Yahoo! shares worth $55 million, about 0.16% of Yahoo!'s stock market capitalization.

No major institutional investors have publicly signed on, so don't expect Semel to step down as a result Jackson's revolt.

But even if Jackson's showing is small, Institutional Shareholder Services Inc. director Patrick McGurn predicts many activist investors will follow in his footsteps, especially after the Securities and Exchange Commission's recently adopted so-called e-proxy initiative takes effect July 1. The new SEC rule will allow corporate proxy materials to be posted online — a move that would ease the considerable printing and mailing costs facing dissident shareholders waging "vote no" campaigns and traditional proxy contests against company directors.

"The SEC's e-proxy initiative is aimed at driving more voting and solicitations online," McGurn said. "We will see a lot more dissident investor campaign activity on the Internet once companies begin using it."

Activist investor Stanley Gold of Shamrock Holdings Inc. represented dissident investor Roy Disney in his campaign to oust Michael Eisner from the board of Walt Disney Co. At a recent SEC roundtable, Gold pointed out that simply the U.S. postal fees to send one proxy solicitation to Disney shareholders cost $2 million. Moving the system online would lower the costs for dissident investor campaigns, he said.

ISS, which advises institutional investors on how to vote in director elections, referenced Jackson's campaign in a recent report. It also recommended that clients vote against Yahoo! directors Ronald Burkle, Roy Bostock and Arthur Kern, all members of the Web portal's compensation committee.

Jackson said if he loses this campaign he will consider pursuing a similar endeavor against Yahoo! next year. He realizes that to succeed at a campaign to oust Yahoo! directors he will need the support of institutional investors. Jackson said he will approach high-profile activist hedge fund managers to support his campaign.

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