Saturday, June 30, 2007

Naples Daily News: Naples Small Investor Led Shareholder Revolt Against Yahoo!

From the Sunday Naples Daily News:

By Laura Layden

Saturday, June 30, 2007

You might call it a Webolution.

It all started back in October when Naples resident and management consultant Eric Jackson wrote about Yahoo! on his personal blog. He questioned the company’s management and the leadership of then-CEO Terry Semel.

He wrote that the rise in the company’s stock price in the first few years after Semel joined Yahoo! in 2001 had more to do with the increased popularity of Internet advertising than with the executive himself -- and that anyone could have done the same job in the same situation.

Little did he know the reaction he would get. E-mails and phone calls poured in from disgruntled investors.

“At the time, there was this huge amount of traffic that came on my blog. I didn’t get that many visitors to my blog and suddenly there was all this interest. People were making comments.
Ninety-five percent were agreeing and frustrated with Semel’s leadership,” Jackson said.
The outpouring of support led him to become a shareholder in Yahoo! and an activist pushing for change.

Observers have credited Jackson for taking down Semel, who stepped aside as Yahoo!’s boss earlier this month. On June 18, Yahoo! announced Semel was out as CEO and that co-founder Jerry Yang would replace him.

The change in leadership came after Jackson, who bought 96 shares of Yahoo! stock in January, led a high-profile campaign to oust Semel and to replace six others on the company’s board of directors as part of what he calls “Plan B.”

“I think a lot of people were dissatisfied, and he just brought a voice that had a lot of weight because he represented the small guy,” said David Neubert, a Yahoo! investor and former Wall Street trader in New York that got behind his campaign. “Representing the small investors gave him more weight than if he was a single investor representing more shares.”

The campaign attracted national attention. The Wall Street Journal, New York Times, Business Week, USA TODAY and the Los Angeles Times picked up on the story. Jackson appeared on CNBC and Bloomberg Television.

“For Bloomberg they sent a truck to where I live in North Naples,” he said. “For CNBC, I had to drive to Fort Lauderdale because there wasn’t a studio in Naples that had a satellite dish to do the uplink.”

He used his blog and YouTube to organize investors to support him.

“I didn’t have any money to do a marketing campaign,” he said.

After reading Jackson’s blog, Neubert pledged his 4,500 shares (worth about $120,000 at the time).

Jackson impressed him.

“You see Carl Icahn do this stuff,” Neubert said. “But you don’t see a little guy like this doing it, and he wasn’t even from the financial world.”

“My hope is that it becomes the wave of the future, and that a lot more individual investors do this,” he said.

The group’s nine-point plan suggested how Yahoo! could turn itself around.

“The company hasn’t been doing particularly well in the last three years, especially in comparison to Google,” Jackson said. “Google’s stock has gone up by about 300 percent, and Yahoo!’s stock has gone down 8 percent, as of a few weeks ago. It has been an underperforming company. It has been a frustrating company to watch as a shareholder.”

Within the first few weeks of posting his interest in driving change at Yahoo!, investors pledged 500,000 shares to his campaign.

“I was surprised at how many current and former Yahoo! employees had contacted me and started expressing interest,” he said.

Today, his group represents 100 individual investors, owning 2.1 million shares (worth about $60 million).

Jackson sent Plan B to the company in February, but the board gave it little notice, he said.
In April, he met with Yahoo! executives in California. But nothing changed, he said.

Now, Yahoo! seems to be paying attention.

At the company’s annual meeting on June 12, more than a third of the stockholders opposed the re-election of at least one Yahoo! director. That rarely happens. It sent a clear message that shareholders weren’t happy and wanted change at the Internet giant.

“I think everyone was very surprised that the vote was as high as it was,” Jackson said.
He attended the annual meeting at the Santa Clara Convention Center in California and asked tough questions of Semel, who at the time appeared to have no immediate plans of leaving Yahoo!.

Jackson demanded to know whether Semel still had the “fire in his belly” to continue on as Yahoo!’s boss.

Semel answered “absolutely.”

Jackson also asked how Yahoo! planned to better compete with Google and grow its display advertising business.

In his speech to shareholders that day, Semel didn’t apologize for the company’s poor performance and Jackson told him he should have.

Semel responded the best was yet to come.

Less than a week after the annual meeting, Semel resigned.

“This is the time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its full potential — it is the right thing to do, and the right time is now,” he wrote in a letter to Yahoo!’s board of directors.

He said there’s “no doubt that, with its new leadership team, Yahoo! will realize its enormous potential.”

Yahoo! seems to be acting on other points in Plan B. The company has stepped up its buy-back program for stock and is looking to reduce overlapping divisions, two suggestions in the plan, he said.

“I don’t expect them to do everything in the plan, but it seems they are following up on several of the points, which makes us happy,” he said. “I think they are on the right track again.”
Jackson, 35, has a master’s and Ph.D. in strategy and corporate governance from Columbia University’s Graduate School of Business in New York.

He owns his own management consulting firm, Jackson Leadership Systems Inc., which his father founded in 1989. Though it’s based in Naples, the company has clients around the country, including cement supplier Lafarge, chemical company BASF and the NBA’s Toronto Raptors.

Previously, Jackson was a vice president of strategy and business development at Web telephone service provider VoiceGenie, now a part of Alcatel. Jackson moved here last fall from Toronto.

This is the first time he’s been involved in an activist campaign. He’s watched others build up their stake in companies to force change. By others he means the likes of billionaire investor and takeover king Carl Icahn, who has made a bid for Bonita Springs-based home builder WCI Communities Inc. and wants to replace the current board of directors with his own slate of officers.

Jackson also has taken cues from Naples’ own Bruce Sherman, an investment consultant who instigated the sale of newspaper giant Knight-Ridder.

The difference is that Jackson is a small investor who used the Internet to organize his campaign.

He even attempted to get elected to Yahoo!’s board of directors, but a technical hang-up kept that from happening.

He’s not stopping at Yahoo! He plans to launch more activist campaigns against other companies.

But he’s not revealing any names yet.

“I’m still researching,” he said. “So we haven’t actually bought the stakes yet.”

With all the publicity from his Yahoo! campaign, he’s been asked if he’s going to create his own hedge fund.

“That might be a spin-off business for Jackson Leadership,” he said. “Hopefully, sooner rather than later. Maybe Naples will become the activist investing capital of the world.”

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Anonymous said...

For once a good Yahoo campaign so to speak.