Wednesday, January 30, 2008

MarketWatch: Yahoo's troubles spur new talk of a buyout

Yahoo's troubles spur new talk of a buyout
Shares off more than 40% since Oct.; takeout potential keeps Street interested
By John Letzing, MarketWatch

Last update: 3:37 p.m. EST Jan. 30, 2008

SAN FRANCISCO (MarketWatch) - When Florida-based shareholder Eric Jackson mounted a campaign last year to spur management changes at Yahoo Inc., he says it was done with the aim of helping the company thrive as an independent entity. These days, however, Jackson isn't sure that's possible anymore - and he's not alone.

Jackson said he has no intention of buying Yahoo soon, even after its stock dropped to a four-year low on Wednesday. "You don't want to be catching a falling knife, and Yahoo's been falling for some time," Jackson said.

"The company hasn't shown it can make tough decisions," Jackson said. If the current state of affairs continues, he said, "I think the best option for shareholders will be a buyout."

Yahoo shares were down more than 8% to $19.02 by Wednesday afternoon, and the stock has fallen more than 40% in the past three months - giving rise to fresh speculation that potential buyers may swoop in, and that shareholders may press Yahoo's management to seriously entertain their offers.

That talk is fueled by continued troubles at the firm. Late Tuesday, it posted a drop in fourth-quarter profit alongside an outlook for 2008 that fell short of Wall Street analysts' expectations. See related story.

Speculation about a Yahoo buyout has swirled since last year, when Microsoft's (MSFT:
Microsoft Corporation interest in such a deal was reported. Buying Yahoo would theoretically place Microsoft as significant competitor in the Internet search market, where it has so far lagged behind both Yahoo and Google Inc.

Microsoft, which has thriving software businesses that could fund a much deeper foray into Internet markets, has yet to actively dispel rumors it is considering an acquisition of Yahoo.
Other possible acquirers of Yahoo include private equity firms, or even larger media companies aiming to expand their Internet presence.

But Cowen & Co. analyst Jim Friedland said potential buyers may want to think twice.
"There's no question that the weakness at Yahoo will reignite interest, but I think there are a lot of good reasons, if you forget about price, for media companies and Microsoft to avoid buying Yahoo," Friedland said in an interview.

Those reasons include an integration with Microsoft that would likely be protracted and messy, and a lack of current assets at Yahoo that media companies might be interested in.

And while Friedland said that taking the company private with a private equity acquisition "is probably the most feasible option," Yahoo's size, coupled with current credit market woes, make that scenario unlikely.

Citigroup analyst Mark Mahaney argued in a note to clients Wednesday that despite its poor outlook and declining share of the U.S. search market, Yahoo still holds value for potential acquirers - which is one of the only things propping up its current share price.

Mahaney downgraded his rating of the company's shares to buy from hold, writing that, "what makes [Yahoo] a hold and not a sell are its potential to be acquired."

Credit Suisse analyst Heath Terry echoed that view in a separate note, writing that, "While we believe there is meaningful value at Yahoo... for shareholders, we believe it may take an acquirer to realize that value."

John Letzing is a MarketWatch reporter based in San Francisco.

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Tuesday, January 29, 2008

The Deal: Eric Jackson still thinking about Yahoo!

From The

[Posted on January 29, 2008 - 7:00 AM]

Eric Jackson made a name for himself last year, when he united a group of Yahoo! Inc. [YHOO] shareholders, predominantly through the Internet, and badgered the company to oust chairman and CEO Terry Semel.

"I have major concerns about the company and I'm not sure about the way they responded to my suggestions since last year," Jackson said. "I'm still a shareholder, and I'm still hopeful, but to be honest, I think there is potentially lower hanging fruit elsewhere to run my campaigns against."

Like many other shareholders and company analysts, Jackson believes Yahoo! needs to make some drastic changes in order to re-invigorate the company and make it more relevant. Those changes include large layoffs, outsourcing its search business to Microsoft Corp. [MSFT] or Google Inc. [GOOG] or even a sale of the company. But Jackson said through conversations he's had with company co-founders Jerry Yang (currently the CEO) and David Filo, and people who have worked with them, that the pair have no current plans to find a buyer.

"I honestly believe that Jerry Yang and David Filo have no interest in selling the company," he said. "Other people could decide differently, but they're pretty big shareholders and carry a lot of weight. It's not going to change shareholders calling for a sale, but I think people underestimate how the two co-founders are so against a sale."

Yahoo! will report fourth quarter 2007 earnings after the market closes on Tuesday. It also is expected to announce layoffs, though the the size of the cuts continues to be debated in the blogsphere. Jackson said he doesn't expect Yahoo! to announce anything "to make investors excited," but still holds out hope that the Internet giant can turn around its fortunes.

"This is a company with incredible traffic, brand awareness and loyalty," he said. "Even though they haven't done that much to come up with new offerings, people love this company. But they're going to have to get much more of an urgency on the board. I think as time goes on, shareholders are going to get more and more frustrated." -- David Shabelman

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Monday, January 28, 2008

IR Magazine: The Hunt Is On

From the February 2008 IR Magazine:

The hunt is on

Feb, 2008

By Anna Snider

Key IRO task is to predict and shape the proxy vote

Companies must focus efforts on the undecided shareholders

Investors are open to engagement – but some companies aren’t trying

Proxy season may lack the spectacle of a political election, but it is not without drama. The issues put to shareholder votes are often simple, but some – like contested mergers or game-changing governance reforms – can be eventful.

During times of controversy, IROs find themselves acting a lot like pollsters. With their attention trained on Wall Street, IROs are experts at gauging investor mood. As proxy issues surface in the run-up to annual general meetings (AGMs), IR professionals seek to determine three things: who is on management’s side, who is against it and – most important of all – who is undecided.

In corporate elections, it can be fairly easy to tell, based on voting histories, who will and won’t uphold the management line. But even after those sides are taken, there can still be a sizeable group of shareholders to influence. It is this group that becomes the target of the IRO, who is tasked with achieving a winning management vote.

There is a growing awareness of the benefit of showing a history of fairness in hearing out shareholders. While some companies still stonewall when investors complain, others are addressing controversy head on, perhaps to minimize ballot proposals.

Pfizer invited top investors in to explain its executive pay packages. Dell started an IR blog in response to some very sore points about its performance. And the SEC has been pushing broader adoption of the concept of informal dialogue via electronic shareholder forums as ‘another venue’ to share thoughts and ideas about corporate direction.

Companies that work on building this kind of trust might find it alleviates misperceptions that percolate into problems at proxy time. Statistics recorded in proxy firm Georgeson’s 2007 annual corporate governance review show this trend at work. Out of 130 resolutions submitted for establishing a majority vote standard in director elections at S&P 1500 companies, fewer than 30 made it onto ballots. ‘Companies are now more willing to settle these issues behind the scenes rather than face shareholder wrath,’ notes Georgeson president David Drake.

Sometimes, however, the proxy outcome is down to a direct pitch. So how does an IRO make it happen? Proxy solicitors insist the approach should be just like it is for investor roadshows and sell-side presentations, except that companies are trying to influence voting decisions rather than buying decisions. And with so much at stake, companies are finding they need to get this just right.

Testing voter preferences

The key part of the proxy process is identifying which investors are open to influence, and no one is better placed to do this than the IRO who interacts with shareholders on a daily basis. The more the company has engaged with shareholders, the easier it is. But whether communication has or hasn’t been established, there is a script to follow.

The first step is to analyze the investor base. Many companies create a spreadsheet listing their top institutional shareholders, their holdings and notes on whether they are index, growth or value investors. It’s not necessarily obvious what their leanings are, but the main goal for the IRO is to go after those who are undecided or who vote on a case-by-case basis.

The information-gathering requires digging. Some institutional funds publish their voting policies on their websites; others vote down the line with the major proxy advisory firms. IROs can call the portfolio managers handling the fund, but they may not answer direct inquiries. ‘Most are pretty strict with their non-disclosure policies,’ explains Paul Schulman, executive managing director of the Altman Group.

Ken Sylvester, New York City’s assistant comptroller for pension policy, admits he’s not revealing. ‘We are open to inquiries from external proxy services, but prefer to hold our votes confidential until a company’s annual meeting is held,’ he says.

It can be a challenge just to locate the proxy voter. While the portfolio manager might vote the shares, sometimes proxy voting is handled in a separate area like corporate governance or compliance. ‘Quite frequently, the person doing the proxy voting is difficult to find,’ says Linda Scott, a senior consultant to Governance for Owners, which handles voting, structural engagement and policy matters for institutional investors. ‘If they want to make it hard, they can.’

Window of opportunity

During proxy season, it’s even tougher to make contact because proxy voters may be looking at hundreds of companies. ‘If I were trying to find that person, I’d spend time doing it in the off season,’ Scott says. ‘Once it’s done, you know where the function is, and it’s worth the effort.’

Waiting until the fourth quarter is too late. Meredith Miller, assistant treasurer for policy at the Connecticut Retirement Plans and Trust Funds, says she knows by mid-August which companies she’s going to engage on governance or strategy issues, and starts the engagement in October or November to leave time for filing an official shareholder proposal before a company’s proxy statement goes out.

Stock surveillance firms can provide dossiers on hedge funds’ activism history. Funds’ ‘poison pen’ letters to other companies outlining their philosophies may also be available in regulatory filings. Despite the notoriety around some of their muckraking, however, hedge funds aren’t necessarily a threat. ‘A lot just don’t vote,’ Schulman says. Those that are active aren’t usually shy, though. ‘I suspect, if a hedge fund cares about governance issues, you know it,’ Scott says.

Once there is some shape to the potential vote, the real work begins. ‘You can go to the institution before the proxy is filed and talk on a fully disclosed basis,’ says Schulman. ‘Or you can go on an anonymous basis to see how it might vote, or how you can convince it to approve what it is the company wants to do.’

The goal is to steer the shareholder from disagreement to a favorable voting outcome without being too heavy-handed. ‘Be careful not to inundate voters to the point where they lose sympathy,’ warns Drake.

There is also the proxy advisory firm constituency. Eric Jackson, a Florida-based investor who challenged Yahoo! and Motorola, says he regularly lobbies RiskMetrics (formerly Institutional Shareholder Services), Glass Lewis and Proxy Governance. Their verdicts can be extremely potent with investors, so IROs can’t afford to ignore them.

‘We’re open to any contact from the board of directors or corporate secretary any time they want to reach out, and we’d welcome any amount of true engagement,’ Miller says.

But companies in many cases aren’t taking the opportunity. ‘Rarely do we get calls from companies trying to determine how we will vote on management proposals,’ Miller continues. ‘Generally, companies enlist proxy services for that purpose. However, over the last few years, I have noticed a sharp decline in the number of calls from these services.’

Essentially, unhappy investors are really looking for some sense of being heard, especially by a board member; that can go a long way when shareholders mull over whether to launch a ‘vote no’ campaign against a director. Even if there is nothing the IRO can do to change a voter’s mind, the polling is still important: it fulfills the role of a shareholder perception study, the results of which are often of intense interest to management and the board.

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Wednesday, January 09, 2008

One-Year Anniversary of "Plan B" for Yahoo!

One year and two days ago, I posted a "Plan B" for Yahoo! with a Youtube video of myself talking about it. A few days later, several people had pledged a couple of hundred thousand shares to the cause -- expressing their dissatisfaction with the direction of the company.

Because of the initial support, we soon launched a wiki of the "Plan B" so that supporters could help edit the plan, which included several suggestions for how to improve the company. A company I'd never heard of ( created a widget for supporters to instantly "pledge" their shares to our cause -- saving me the pain of writing down their share counts left in comments to an excel spreadsheet.

I met with Yahoo!'s General Counsel, Michael Callahan, in April at their Sunnyvale offices to discuss what our shareholder group wanted. I tried to run for the board (they blocked me). And our group also encouraged a strong "against" vote leading up to the June Annual Meeting (which I attended and confronted the board and management).

There was an extremely high "against" vote by shareholders at that meeting (36% "against" for some). Six days after the meeting, Yahoo!'s CEO, Terry Semel, stepped down.

One year later, did it matter?

Yes; not so much because of significant changes that have subsequently happened at Yahoo!, but because of what I hope the whole effort inspires in other small shareholders.

I hope the legacy of the Yahoo! "Plan B" campaign is that every shareowner counts and can make a difference if he/she decides to voice their opinion. There's one caveat to that. You can't just complain. Yahoo! Finance Message Boards are filled with comments from disgruntled investors who think management is terrible and should be replaced. That's not good enough, if you want to build a large group of like-minded investors. You have to be able to answer the question: "If you're so smart, what would you do if you were in charge." It doesn't have to be a perfect answer, but you need to have enough of an answer to engage a dialogue with others.

Engagement is the key word. As I have watched the lines of people forming to vote in New Hampshire and Iowa in these past two weeks, I thought of shareowners. A democracy is stronger when it is more vibrant with an engaged electorate -- no matter who is elected finally. Our capital markets are similarly stronger when they are made up of engaged shareowners willing to challenge management and directors when they don't understand some of the decisions made.

With the tools of the Internet, we have no excuse for not getting involved in speaking up when we don't like what's going on at companies in which we hold shares. On the other hand, it would be appreciated if the SEC could at least meet us half-way by providing more of an opportunity to have a spotlight on our opinions. The failure of the SEC to adopt more "shareholder access" friendly rules last year was a major disappointment. Hopefully, the winds of change will blow favorably on that issue in the year ahead.

Whatever happens, shareowner power will always remain in our hands. Let's use it.

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Thursday, January 03, 2008


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