Are these Disclosures Conflicts of Interest for Yahoo!?

If I told you that Yahoo! had made a charitable contribution to an American University in the last year, which one would you guess? Stanford University, where Jerry and David dreamed up the company in the computer labs more than a decade ago? Cal? San Jose State? Try Duke.

You probably weren't familiar with a long fabled relationship between the Silicon Valley-based Internet company and the fine academic institution on the other side of the country on Tobacco Road. Let me connect the dots for you. Yahoo!'s Chairman, Roy Bostock, and fellow director, Gary Wilson (both appointed by former CEO Terry Semel), serve on the board of the Fuqua School of Business at Duke.

Unfortunately, we don't know exactly how much Yahoo! gave to Duke. I don't see why shareholders shouldn't know the amount. The fact that it's the only university named in Yahoo!'s most recent proxy filing as having received such a contribution from Yahoo! last year, when there is this obvious relationship with two directors, calls for more disclosure -- not less.

It's also strange that the only other non-profit institution receiving a charitable contribution last year was The Partnership for a Drug-Free America, for which Mr. Bostock is also a director.

These donations are fully disclosed in the proxy under "Related Party Transactions" but are they right and proper? I don't think so. In my view, Mr. Bostock shouldn't be able to leverage his job as Chairman (which paid him $568,449 last year in total comp) to access the company's Treasury (the shareholders' money -- not his) for his pet causes.

Full disclosure: I don't think Mr. Bostock is fit to serve as the Chair of this dysfunctional board. He led the charge in the famously disastrous Microsoft merger negotiations last year. Then, he spoke at length at the 2008 shareholders' meeting, about just how hard Yahoo!'s board had worked to secure a deal. His words to the audience dripped with condescension.

I attended the meeting and asked him if he thought he deserved to make $500,000 for his Yahoo! job. He told me he didn't make that much money in the prior year and I had my facts wrong (they were the facts). I followed up by asking him to resign off the board based on how nearly half of shareholders had voted against his re-election at the prior year's shareholder vote. He told me I was a guy who looked at the glass half-empty and he saw the glass half-full with the number of "for" votes he did receive.

Given Mr. Bostock's rose-colored glasses, I have no doubt he saw no problem in seeking out a charitable contribution for his two affiliated non-profit organizations. How much were the contributions, Roy?

Perhaps more troubling for Yahoo! shareholders is that, in that same section of the proxy filing, there was the following disclosure:

- Transactions in the ordinary course of business between the Company and entities for which the following directors served as an executive officer, employee or substantial owner, or an immediate family member of an executive officer of such entity: Mr. Icahn, Mr. Joshi, Mr. Kotick, and Mrs. Wilderotter.

VJ Joshi runs the printer division at HP, so I can imagine that Yahoo! bought some ink cartridges from them last year. Bobby Kotick runs Activision, so maybe the company bought some recreational copies of "Guitar Hero" for the senior officer and director lounge. Maggie Wilderotter runs Frontier Communications which sells cheap phone and DSL service in upstate New York and the surrounding area. So, I have a harder time understanding Yahoo!'s need to do business with them -- although maybe there are some remote workers in Rochester who can't get AT&T access (with whom Yahoo! has a large strategic partnership).

It's the Carl Icahn connection that I have a harder time understanding. Certainly there shouldn't be any business dealings between Yahoo! and Icahn's hedge funds, where he's an executive officer and employee. Do his hedge fund investments qualify as him being a "substantial owner" even if they're relatively small? Even still, did Yahoo! do business with Blockbuster, Lions Gate Entertainment, Motorola, American Rail Car Industries, Biogen, Federal Mogul Corp., PSC Metals, or Endzon Pharmaceuticals? The company should more completely spell out the business dealings between Yahoo! and Carl Icahn. How much were they? To whom? And for what?

Later in the same section, they state:

- Relationships and transactions in the ordinary course of business involving aggregate payments greater or equal to $10,000 with companies and their applicable subsidiaries, for which the following directors served as non-employee directors during all or part of 2008: Mr. Biondi, Mr. Bostock, Mr. Burkle, Mr. Hippeau, Mr. Kozel, Mrs. Wilderotter, and Mr. Wilson

We've discussed the ties of Roy Bostock and Gary Wilson to Duke and The Partnership for a Drug-Free America. Now, we've expanded the relationships where Yahoo! paid these directors' companies to include Mr. Kozel (no longer on the board), Mr. Hippeau who makes investments for Softbank and took a job earlier this year for the Huffington Post (in which he's an investor), Mr. Burkle who is on the boards of Occidental Petroleum & KB Home, as well as the Frank Lloyd Wright Building Conservancy, and Mr. Biondi (friend and colleague of Carl Icahn) who is a director for Amgen, Cablevision, Hasbro, and Seagate.

Again, shareholders should fully understand the exact amounts of the payments being made and to whom they are being made in these related-party transactions.

Maybe these payments are all legitimate and above board. If they are, let's disclose them and let sunlight be the best disinfectant.

[Jackson's fund holds no position in YHOO at the time of publication.]

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Bartz's Pay Package Egregious

09/16/09 - 07:00 AM EDT

By Eric Jackson

YHOO , MSFT

Yahoo!(YHOO Quote) CEO Carol Bartz didn't get the "boatloads of cash" for her shareholders from Microsoft(MSFT Quote) as she vowed in May, but she'll take home a boatload of cash herself out of Yahoo! for her work in 2009.

A review of her total compensation plan reveals that Bartz is on track to make $20 million to $30 million this year in cash and stock (depending on if the share price rises 13% by December and stays there for the rest of the year or not); and $187 million for her first four years on the job, assuming the stock can get back to $25 by then.

In last week's Activist column, we shined a spotlight on the large amount of insider selling which has occurred at Yahoo! in the past two years (based on our study of the Securities and Exchange Commission filings leading to other media reports on this topic), including Bartz dumping $2 million in shares in March and June.

Since that column appeared, Bartz, Yahoo!'s PR SWAT team and Bartz' defenders have claimed that there was "no story here," as these were "routine" share sales made to pay taxes on generous Restricted Stock Unit (RSU) grants. Bartz went so far as to say "I didn't sell anything" on television and there have also been vague references to her shares being "reacquired" again. They have not - as the actual Form 4 SEC filings show. They state only "disposals" of $2 million in Yahoo! shares, which of course immediately lower the company's earnings per share.

Contrary to what any PR flak says, these kinds of tax-related share dumps when RSUs vest may be common at lower levels of the company, but they are not at the highest level, where executives have more than ample means to pay their taxes out of their own pockets. Bartz made $45 million in 2007 alone just from exercising her Autodesk(ADSK Quote) options, so she could have easily scratched together $2 million to pay the tax man if she'd wanted to hold on to her Yahoo! shares.

It turns out that, when you start to peel the onion around Bartz' CEO employment contract, there are many interesting details which Bartz would likely not want discussed. Prior to negotiating with Yahoo! for the top job, Bartz hired an unnamed financial advisory firm to help her. Later, when the deal was done, she got Yahoo!'s board to agree to Yahoo!'s shareholders paying "up to $150,000 for advisory fees" for her use of that savvy firm (which is outrageous and she should immediately reimburse Yahoo! shareholders for that with interest).

That negotiated agreement is a good one for Bartz, as this analysis shows. Making reasonably conservative assumptions, Bartz should get $187 million for her planned four years of work at Yahoo!

One small part of that agreement is something Yahoo! calls the "Make-Up Grant." Because of "forfeiture of the value of equity grants and post-employment medical coverage from" leaving her old executive chairman job at AutoDesk, which has one-fourth of the market cap of Yahoo!, Yahoo!'s board said she was due $10 million.

As part of that grant, she'll get $2.5 million in cash this year and 639,386 RSUs (or shares). The cash and shares vest at a rate of 25% quarterly in 2009. By the end of this year, those shares and cash will be worth about $12.5 million (not the $10 million grant date fair value; see this breakdown for more detail .

Yahoo! states later that they are providing "post-employment medical coverage for Bartz, her spouse and eligible dependents" on top of her grant, so that should not be linked to the value of the "Make-Up Grant." Therefore, the only thing to be made up for is the value of her unexercised AutoDesk equity options.

Yet when you go back and review the unexercised options she possessed in the 2008 AutoDesk proxy statement and the ones she subsequently exercised and sold in share sales through the rest of last year, I calculate Bartz' value of her unexercised equity grants at far less than $10 million.

On the date her Yahoo! employment agreement was announced (Jan. 15, 2009), AutoDesk was trading at $16.14. That means, her remaining 250,912 $11 strike price, her 36,420 $8 strike price, and her 993,056 $14.40 strike price unexercised options had a fair value on the date she took the Yahoo! top job of $3.3 million -- not $10mm.

This major "Make-Up Grant" discrepancy between what Yahoo! chose to award Bartz and what it appears -- according to her AutoDesk SEC filings -- she was in fact walking away from should be explained to shareholders immediately.

Setting this problem aside, Bartz -- like any other employee who gets RSUs -- has to pay tax on stock grants whenever she receives them. To pay the tax, Bartz must make a choice to write a check to the government from her personal account to cover this or sell part of these Yahoo! shares from the RSUs. In the first and second quarters, Bartz sold $2 million in Yahoo! stock to pay her taxes. It's very likely she'll do this again later this month and in December, when the rest of her "Make-Up Grant" shares vest.

Which brings us to the core problem: given her leadership role at Yahoo! and given her generous Yahoo! compensation and sizable wealth she's amassed from her time at AutoDesk, why would she dump Yahoo! shares instead of paying her tax bill herself? It sends the wrong message to employees and shareholders that she wouldn't be kicking and screaming to keep every last Yahoo! share in her possession.

I think there's a simple answer to this question: Carol Bartz is used to getting generous tax gross-ups from companies she works for and likely she (or her high-priced advisors) negotiated this in as part of the deal.

A tax gross-up is when an executive wants to receive a certain amount of compensation award or benefit but knows they'll have to pay taxes on it. Rather than pay that tax bill themselves, the executive asks the company to bump up the value of the award in the amount of any taxes they would otherwise have to pay. They end up getting the amount of money they want tax-free -- with taxes paid for by the company's shareholders rather than the executive.

For an example, let's go back to the 2008 AutoDesk proxy statement : "During fiscal 2007, Ms. Bartz's other compensation included post-employment health and dental benefits with an actuarially determined present value of $631,986 plus a $421,324 tax gross-up, and a Company gift for appreciation of years of service as CEO costing $67,500 plus an associated $33,889 tax gross-up." Have you ever heard of a gross-up on a gift for years of service?

Tax gross-ups are completely unacceptable and any well-governed company doesn't allow them. If you make money or a benefit of some kind, you should pay tax on that -- not the shareholders who gave you the benefit in the first place. To use one of Bartz' favorite words, tax gross-ups are stupid.

Bartz has clearly become used to tax gross-ups at AutoDesk and likely she or her high-priced advisors were thinking of this "Make-Up Grant" in the same way. They might have negotiated her $3.3mm fair value (as of mid-January 2009) unexercised AutoDesk options into a $10mm make-whole grant from Yahoo! That's a tax gross-up and then some.

Yahoo!'s compensation committee is to blame here. First, they pay Terry Semel over $570 million for his six years as CEO; then, they award Bartz a four-year $187 million pay package with up to $30 million in year one; then, they see their ineffective incentive plans lead to Yahoo! insiders selling $233 million in stock over the past two years versus insider purchases of only $103,000. Now, we learn of these discrepancies in the reasoning for different elements of Bartz' pay.

Where is Carl Icahn in all this? It turns out he was right at the negotiating table when all this went down. His colleague, Frank Biondi, has served on Yahoo!'s compensation committee since joining the board in September 2008. He directly oversaw the design and approval of Bartz' pay plan, which, in my view, wasn't in the shareholders' interests.

Of course, Bartz is at fault here too. She's gotten too used to high pay and tax gross-ups over the past few years -- both for herself and for CEOs she has socializes with.

Examine this table below for a comparison between the average annual total compensation for several popular tech CEOs vs. ones in Bartz' social network. Bartz doesn't suffer fools -- or CEOs who don't bank a lot of coin.

Popular Tech CEOs
CEO	Most Recent Avg. Annual Total Compensation
Eric Schmidt, Google	$500,000
Jeff Bezos, Amazon.com	$1.3mm
Steve Ballmer, Microsoft	$1.3mm
Steve Jobs, Apple	$1
Carol Bartz' Network of CEOs by Employment or Directorship
CEO	Most Recent Avg. Annual Total Compensation
John Chambers, Cisco	$11mm
Paul Otellini, Intel	$12mm
Dan Warmenhoven (Ex-CEO), NetApp	$5.7mm
Carl Bass, AutoDesk	$7mm
Carol Bartz (when Executive Chairman), AutoDesk	$4.5mm

Source: Company proxy statement SEC filings

Several things should be done to fix this mess:

• To avoid these questions about her commitment, Bartz should put some skin in the game. I think she should buy stock in Yahoo! that represents a significant chunk of her net worth. I would suggest at least half the value of her 2007 exercised options from AutoDesk or $23.5 million. This is not that large relative to the upside she should make from her 4 years at Yahoo!
• Bartz should immediately pay back the $150,000 to Yahoo! shareholders for her financial advisors who helped her negotiate a $187 million four-year deal for her.
• The Comp Committee (Art Kern, Ron Burkle, and Frank Biondi) should all resign off the board. Enough is enough.
• Someone else from Yahoo!'s board should explain why Bartz' $3.3 million in unexercised AutoDesk options had to be "made up" for by Yahoo! shareholders to the tune of $10 million.
• Yahoo!'s board should also provide much more transparency on Bartz' employment contract. For example, what cash flow and total shareholder returns targets does she exactly need to hit in order to receive her 4 times base salary annual bonus and other equity grants and options. If shareholders can't trust the details around the "Make-Up Grant," why should they trust the board's decisions on these other compensation matters?
• Yahoo! should change their comp plans going forward for all executives and directors so that base and target bonuses are quite low -- even lower than the often cited "peer group." How will they attract people? Load up the incentives on the back-end. And, instead of having those incentives be triggered by 20 consecutive trading days at a certain stock price level (as Bartz' are), require that the stock stay there for two years (with clawbacks in case it drops back done). This will eliminate short-termist thinking.
• Finally, Bartz should refrain from going on TV in the future saying she "didn't sell anything" after she has sold $2 million in shares.

At the time of publication, Jackson had a net long position in Microsoft.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Carol Bartz' Total Compensation Package as CEO of Yahoo! for 2009 - 2013

Analysis of total compensation Carol Bartz is eligible to make between 2009 - 2013, as CEO of Yahoo! All data taken from SEC filings made by the company in January and February 2009. This compensation plan was approved by Yahoo!'s compensation committee consisting of Chair Arthur Kern, Ron Burkle and Carl Icahn's representative Frank Biondi.

If reasonable and max targets are hit, she should receive total comp of $29mm for the year 2009 and $187mm for the years 2009 - 2013 inclusive.
Carol Bartz' Total Compensation Plan as Yahoo! CEO

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Business Insider: Insiders Treat Yahoo "Like It's Their Personal ATM" (YHOO)

[Note from Eric: This article came out today in Business Insider. Both it and an earlier post from Henry Blodget refer to an analysis done by The Guardian on Carol Bartz cashing out $2m in stock between Feb. 1 and June 30th of this year. That analysis was actually done by me last week. The original study was posted here. I'm glad the analysis is getting some well-deserved attention. Contrary to some reports, I don't own any YHOO shares. I sold my entire stake about a year ago, after being disappointed with the Board's defense of its handling of the MSFT negotiations at the August 2008 shareholders' meeting. I'll be providing a detailed opinion piece on my study of YHOO insiders cashing out in tomorrow's TheStreet.com.]

Nicholas Carlson|Sep. 8, 2009, 1:25 PM|comment5

Tags: Online, Yahoo!, Big Tech, SEC Stalker

Following reports that new CEO Carol Bartz has already sold $2 million worth of Yahoo shares, Ironfire Capital hedge fund

manager Eric Jackson compiled a list of Yahoo (YHOO) insider stock purchases and stock sales over the last two years.

He calls the list "a case study in compensation excesses."

See the insiders who Eric says treat Yahoo "like it’s their personal ATM." →

Eric will publish his full reaction on TheStreet.com tomorrow. But here's a preview of his findings:

• Insiders have bought $67 million in Yahoo! stock in the past two years. However, of this amount, the vast majority was bought by Carl Icahn for his hedge fund*, which he has already sold (and more -- $189 million) in the last 2 weeks. A small amount of stock was purchased by Michael Murray, Yahoo!’s chief accounting officer who announced last week that he’s leaving the company. Not including Icahn’s and Murray’s stock purchases, Yahoo! insiders have collectively bought only $103,700 in stock in the past two years.
• Over the same period, Yahoo! insiders have cashed out $233 million in stock.
• In those 2 years, Yahoo! insiders have also seen zero strike price options vest which they have yet to sell in the open market but which have a current market value of another $58 million.
• Therefore, for every dollar of stock purchased by a Yahoo! insider in the last year, they sold stock or received options worth $2,159.

See the insiders who Eric says treat Yahoo "like it’s their personal ATM." →

Note: Eric only tracked Carl Icahn's purchases and sales since he's been a Yahoo board member and the company has had to disclose his transcations to the SEC. Prior to joining the board, Carl acquired tens of millions of dollars worth of Yahoo shares. Of course, all this only re-emphasizes Eric's point that Yahoo insiders sell more shares than they buy.

Yahoo! (YHOO) Executive & Director Insider Stock Purchases and Stock Sales in the Last 2 Years

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Yahoo! Insider Stock Purchases & Stock Sales in the Last 2 Years: A Case Study in Compensation Excesses

The following spreadsheet -- with data gathered from SEC filings -- shows the insider stock purchases and stock sales (as well as exercised options) by Yahoo! officers and directors in the last 2 years. It shows for every dollar of stock purchases made by the insiders, they received $2,159 in compensation out of the company and its shareholders.

Yahoo! (YHOO) Executive & Director Insider Stock Purchases and Stock Sales in the Last 2 Years

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Yahoo!'s Directors Must Go

08/05/09 - 09:51 AM EDT

YHOO , MSFT , GOOG

Eric Jackson

REDMOND, Wash. (TheStreet) -- Last week's news of a search partnership between Microsoft(MSFT Quote) and Yahoo!(YHOO Quote) means that Yahoo! is leaving the search business and handing the keys over to its rival and former suitor.

The market sent Microsoft's shares higher and dropped Yahoo!'s like a stone. Since the announcement, 15% of the Web portal's market capitalization had been shaved off. After a lot of tough talk from the new CEO in her first six months, Carol Bartz has laid her first egg with investors. She didn't manage expectations properly. But it's Yahoo!'s longtime directors who deserve the most blame for this most recent Yahoo! stumble. They should leave immediately.

After years of abuse, Yahoo! investors took heart when Bartz was named to replace Jerry Yang as CEO in January. From the moment she arrived, her cussing and put-downs of her predecessors earned her points on Wall Street and with journalists.

She described Yang's organizational chart of Yahoo! as something out of Dilbert; she agreed with the "Peanut Butter Manifesto" -- a 2006 internal document penned by a Yahoo! vice president that pointed out the internal problems with the company -- at a May conference with Terry Semel and Sue Decker (Yang's predecessors in the top two roles) in the audience; and at the same conference, about 60 days before last week's announcement, she told the audience she would do a deal with Microsoft for "boatloads of cash."

After a $47 billion buyout offer from Microsoft last year for all of Yahoo!, followed by a proposed search deal with a $5 billion upfront payment, Yahoo! investors believed that Bartz finally had Yahoo! on the right track. She let the expectations run. The stock climbed to more than $17 from $13 before the search deal was announced.

Yet, last week's announcement saw Yahoo! shareholders get no upfront money from Microsoft. Instead, they get 88% of the ongoing revenue, or traffic acquisition cost (TAC) rates, from Microsoft in the partnership for the next three years. Meanwhile, Yahoo!'s shutting down its search engineering unit, which employs about 1,000, and saving on that ongoing investment.

Microsoft is getting a zero money-down, lease-to-own deal that allows it to swallow the No. 2 competitor in the fast-growing search market and achieve a credible market share level against Google(GOOG Quote). Despite the high TAC rate, you haven't been able to find one Microsoft shareholder irate about this deal, including me.

Bartz tried to explain the deal to her investors on the initial call by saying that instead of receiving "boatloads of cash," they were getting "boatloads of value" from the deal. The Street thought otherwise and butchered Yahoo!'s stock price.

For the first time in her Yahoo! tenure, she's contrite: "I made a mistake. I was never interested in doing it for upfront money. That doesn't help me operate a business."

Bartz can't have it both ways. She can't portray herself as the "grown up" cleaning up the mess that the kids who used to run the place left her with and then make such a rookie mistake in managing investor expectations. Either she knew 60 days ago that she was getting no upfront payment and made a misguided "boatload" comment, or Microsoft really turned the screws on her in the last few weeks and stuffed lousy terms down her throat that she had to take.

Her other explanations for doing this deal sound hollow. She said, "We didn't want to get into an arms race with Google and Microsoft in search." Then why did your board authorize spending billions on search companies and hundreds of millions of dollars in internal development of the much hyped and never effective "Project Panama" over the last three years?

Bartz said, "We didn't want to pay a lot of taxes on an upfront payment." Wouldn't your shareholders like to see you paying a lot in taxes on a payment as a sign that you had received a lot of money from Microsoft?

She said the market had changed a lot since 2008, when the full buyout offer for Yahoo! was still on the table. Yet, since Microsoft dropped the bid for Yahoo! on May 4, 2008, the Nasdaq is down only 17%, while the value of the deal Microsoft is paying to Yahoo! has dropped 90% (from $47.5 billion to $4 billion to $5 billion, according to Bernstein's Jeff Lindsay), and Yahoo!'s stock price has dropped 47%.

And, what's with the heavy "me" and "I" references in her explanations? I was under the impression that turning around a $20 billion company was a team sport.

These mistakes aside, the real blame here lies at the feet of the Yahoo! directors who have served on the board for the entire time that Yahoo! has failed miserably in search -- the most lucrative non-monopolistic business that modern business has ever known. Yahoo! has had plenty of chances to dominate this space for the last decade and has missed every one.

Yahoo! built its own search engine, which was the original mission of the company; the directors decided to outsource it to a then unknown company called Google, giving Google huge name recognition because of Yahoo!'s traffic; Yahoo! later determined search was a valuable business itself and paid $235 million for Inktomi in 2002, and $1.6 billion for Overture, which created paid search before Google created AdWords, in 2003; and the directors trusted Semel and Decker's promises that "Project Panama" would close the gap between Yahoo! and Google. Yahoo!'s search share is below 20% and the directors have now decided to shut down all internal search development and hand the keys over to Microsoft.

There are five Yahoo! directors who've sat in on all the deliberations about search in the last eight years: current Chairman Roy Bostock, Ron Burkle, Arthur Kern, Eric Hippeau, and Gary Wilson. Where is the accountability here? Why must Semel, Decker, and Yang face the music for strategic decisions that didn't pan out, while these five men avoid all scrutiny and criticism? It's an embarrassment for Yahoo! and each of these men's corporate reputations that they are still there.

We can't always be right, but each of these men has endorsed failure too many times to still retain a job as a fiduciary for Yahoo! shareholders.

-- Written by Eric Jackson in Naples, Fla.

At the time of publication, Jackson's fund had a long position in Microsoft.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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New York Times Could Use Mogul Aid

05/13/09 - 12:36 PM EDT

NYT , GOOG , CVC , MEG , NWS

The New York Times Co.(NYT Quote) continues to struggle. Even after raising $250 million from Carlos Slim at a 14% interest rate and selling its own building and leasing it back for another $225 million, the company is facing a bleak future in a bleak industry.

Advertising revenue keeps grinding down. It dropped 27% in the first quarter alone compared to the year before. The company has stopped paying its dividend and is looking at unloading its stake in the Boston Red Sox. Yet, even if it does this, the Times will continue to be forced into major cost cuts next year to avoid bankruptcy, if current advertising trends persist.

For some people, those difficult economic realities don't change their love of the country's biggest newspaper. Entertainment mogul David Geffen tried recently to buy the 19% stake in the NYT owned by Harbinger Capital. No deal was struck because Geffen was reportedly unwilling to pay above market price for the shares.

It's likely that moguls will continue to look at buying some of the NYT. Equally likely is that the Ochs-Sulzberger family will agree to sell part of the company to these interested parties because it will be much more palatable to them than the prospect of losing control of the company entirely through a bankruptcy filing.

There are several reasons why Harbinger Capital would want to sell its stake in the newspaper. Harbinger bought its stake with great fanfare in late 2007. At the time, NYT was one of several large established media companies that Harbinger owned, with an eye to pushing them to adopt certain changes that would positively impact their stock prices. They took large stakes in Media General(MEG Quote) and Cablevision(CVC Quote), making their views known immediately on what needed to be done.

Yet, the world has changed for Harbinger since then and the NYT investment certainly hasn't worked out well for them financially. They've been hit with redemptions like any big hedge fund, and they've turned their back on media, drastically reducing their Media General and Cablevision stakes.

Harbinger's founder, Phil Falcone, is now spending a lot of time looking at starting a new satellite phone service and might raise a dedicated fund for that purpose. Selling its stake in the Times would be another turning of the page for Harbinger.

The most likely suitors for Harbinger's stake will be moguls like Geffen. For some reason, moguls appear to be drawn to the newspaper industry. Sam Zell bought Tribune. Geffen and Eli Broad were interested in the Los Angeles Times. Broad and Ron Burkle sniffed around The Wall Street Journal, before another mogul, Rupert Murdoch, closed the deal with the Bancroft family.

Besides Geffen's interest in the Times, and Slim's existing ownership stake that could potentially grow over time, Bloomberg LP has apparently been looking at buying a stake, as have the Google(GOOG Quote) founders (although Scott Galloway, one of Harbinger's two representatives on the NYT board, denies there have been discussions with Google).

The Ochs-Sulzberger family has given every indication that it wants to hang on and ride this out. The dividend used to be a major source of income for some family members. There are also several younger members of the family working their way up in the organization with hopes of taking on key leadership roles in time.

Yet, time isn't really on the side of the family. The current economic environment likely will continue to pressure the company. The Times could start charging for online content or make cutbacks in the newsroom, but it's likely it will still be facing a cash crunch next year.

If it's a choice between cutting the NYT's journalistic standards and selling an equity stake to a mogul who views the ownership stake like a bauble to brag about to friends, I think the family will take the money.

Some moguls like trophy real estate assets; others like trophy newspaper assets. The New York Times is the biggest newspaper trophy in the world. My guess is that the Ochs-Sulzberger family will stay involved in the paper, but there will be two new moguls sitting on the board by this time next year.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

Originally published in TheStreet.com

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Bloomberg and the New York Times

It wouldn't be impossible for Bloomberg LP (a distinct entity from Mayor Bloomberg) to buy Harbinger's stake in the New York Times (NYT).

To get elected Mayor in the first place, Bloomberg had to separate himself from the LP's assets and decision-making structure. What that company chooses to do to grow itself is its business. And with them already in the media so much already, I don't see how adding a newspaper would make much difference.

The most recent investor in NYT is Carlos Slim -- Mexican billionaire. I remember reading a few cautious comments at the time wondering if he would get more favorable coverage now from the Times. At the end of the day, he got to invest because he had the money that NYT needed. I'm sure Bloomberg could buy Harbinger's stake if it wanted it and Harbinger wants to sell.

At the end of the day, NYT and any other large newspaper stock such as Gannett (GCI) is in trouble. However, NYT still has a romantic cachet attached to it -- unlike USA Today.

Therefore, I believe that the most likely outcome is that it sells itself entirely to one or more high net-worth billionaires (like Bloomberg, Slim, Burkle and so forth) along with some private equity types. It will be a bauble asset for those people -- something to brag about at a dinner party. Not an investment they can expect to make money from (at least not in its current form).

That outcome makes it tough to trade, because you never know when the offer might come and how much the stock might trade down in the meantime.

Position: None.

Originally published in RealMoney.com on 4/29/2009 11:02 AM EDT

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CEOs Scratching Each Others' Backs

Following my post yesterday about why I was against CEOs serving on another company's board, I got a lot of supportive email.

One reader, Burt, said:

I agree with you completely. I would like to see a comparison of the incomes of the board of directors for the companies that the CEO's from other companies sit on. They take care of each other, and do not take care of their own companies, in my opinion. I believe that the pay for the top management should not be set by other CEO's and get away from the "good ole boys network" and bring their pay back to a scale which is indicative of their performance at their companies.

Let's take Yahoo!'s (YHOO) board again, which I still believe is highly dysfunctional, even though I like what Carol Bartz is doing. Recall that one of the things that got investors steamed at the company was how the stock vastly under-performed against Google (GOOG) and NASDAQ from 2004 - today, yet the company company continued to award lavish pay to former CEO Terry Semel.

All told, Semel took out over half a billion dollars in executive comp from YHOO's shareholders during his tenure, even as the company passed on the chance to buy GOOG and Facebook and saw its search market share drop precipitously. Who served on the YHOO comp committee during this time? Art Kern, a current CEO; Roy Bostock (now Chairman), a former CEO, and Ron Burkle, a private investor who has been known to pay his fellow partners well and who also serves on the boards of Occidental Petroleum (OXY) and KB Home (KBH) where exec compensation still is very high compared to the rest of the S&P.

I don't think any of these men set out to deliberately overpay Terry Semel, they simply decided to pay him the way they'd want to be paid if they were CEO. This type of back-scratching in our boards needs to stop.

Originally published in RealMoney.com on 4/21/2009 7:35 AM EDT

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Time for a Yahoo! Board Reboot

There's a great post from Kara Swisher this morning, which tips the cap to Sue Decker for stepping down from Yahoo! now and also calling for Roy Bostock to do the same. I want to second her sentiments.

Chairman Roy Bostock has repeatedly blown off criticisms of his botched handling of last year's Microsoft's negotiations by suggesting it was all because of Microsoft that a deal didn't get done.

He was dismissive of my suggestion at last August's annual meeting that he step down after 30+% of shareholders voted against his reelection in 2007. He said I was looking at it with a glass half-empty mentality. A few days later, we learned that well over 40% of shareholders voted against him at that August meeting. The figure would have been well over 50% had Carl Icahn's gold proxies from the previously called off proxy fight had been counted against Bostock.

If Carol Bartz wants to send the message that Yahoo! now has a performance culture, she should turn around and fire the guy who just hired her: Roy Bostock.

As Kara also says, she should then point her eyes on other directors. Gary Wilson and Ron Burkle -- like Bostock -- have received sizable protest votes from past annual meetings from investors. They came in weeks after Semel was hired (both are LA residents like Semel). Art Kern and Eric Hippeau have served on this board for over 12 years. That's not exactly a pair of fresh eyes they bring to the decision-making process. Finally, Kara suggests her sources said several directors wanted to be CEO. This is likely John Chapple and Maggie Wilderotter. They might also want to move on (even though they're relatively new to the group) to avoid any Bartz back-seat drivers.

Carol and Jerry need to hit "re-boot" to this board to really refresh this company.

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RiskMetrics: Yahoo! Revised Vote Count Underscores Need for Reform of Proxy Voting Process

Submitted by: L. Reed Walton, Publications, and Ted Allen, Publications
August 12, 2008

Investors heard last week that votes against the re-election of Yahoo! board members were significantly higher than initially reported, due to an error.

Four directors -- Chairman Roy Bostock, CEO Jerry Yang, Ronald Burkle and Arthur Kern -- all received greater than 30 percent opposition at the company’s Aug. 1 annual meeting. The company had previously reported that no board member received more than 22 percent withhold votes. Another director, Gary Wilson, had just under 30 percent opposition, according to a company press release. The revised release, dated Aug. 5, notes that the error originated with Broadridge Financial Services, the firm that Yahoo uses to collect and tabulate shareholder votes.

No other directors received greater than 10 percent opposition. Incumbent director Robert Kotick is due to step down, as the board expands to accommodate billionaire investor Carl Icahn and two of his dissident nominees under an agreement that pulled the plug on Icahn’s bid to replace the entire board in a proxy contest. The three new Yahoo directors are likely to be appointed around Aug. 15, Dow Jones Newswires reported.

The company’s initial vote tally announcement, just after the meeting on Aug. 1, caught the attention of Yahoo critic Eric Jackson, founder of Ironfire Capital. Jackson leads a network of investors owning approximately 3.2 million Yahoo shares. He noted a discrepancy of about 200 million shares between the number of votes cast for directors last year and this year. After Jackson wrote about the error in his weblog, Capital Research Global Investors--which owns a 6.2 percent Yahoo stake--asked for a recount. According to the Associated Press, Capital opposed Yang and figured that he would have received more than the 14 percent opposition originally reported.

Broadridge said that a printing error was responsible for the incorrect results and re-issued the tallies, according to the AP. The revised results show that investors withheld 33.7 percent support from Yang, whereas opposition to his election was minimal last year. Bostock and Burkle had the most re-election opposition this year, with 39.6 and 37.9 percent withholds, respectively, versus dissent of 31.2 and 32.5 percent, respectively, in 2007.

The vote at Yahoo underscores the complexities of proxy voting in the U.S. market, where ownership is widely dispersed and about 85 percent of company shares are held in “street name” by brokers and other custodians. Edward Rock, a law professor at the University of Pennsylvania who co-wrote a 2007 paper, “The Hanging Chads of Corporate Voting,” said the proxy voting process is “crude, imprecise, and fragile.”

“Broadridge delivers more than 1 billion communications to investors per year. . . . It is an accident waiting to happen,” Rock said, according to MarketWatch.

“When it comes to the tabulation of proxy votes, most investors don't even know what they don't know,” said Pat McGurn, special counsel at RiskMetrics Group. “The tabulation process is as airtight as a sieve. It is as transparent as a brick wall. Simply put, the proxy voting infrastructure has failed to keep pace with the complexity of the investment process. It is only a matter of time until there is a complete meltdown at a significant meeting. Officials from the SEC, the stock exchanges, and Delaware must come together with key market players to fix the system.”

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After Vote-Gate, Heads Must Roll on Yahoo’s Board

From Voices:

By Eric Jackson

Managing Member, Ironfire Capital LLC

August 6, 2008

To anyone who says that it’s inconsequential that Yahoo understated the level of shareholder dissatisfaction by more than half thanks to a “tabulation error” by its proxy counter, Broadridge–I say: You couldn’t be more wrong. This incident will have ramifications in the coming weeks for the composition of Yahoo’s board. But here’s the shocking thing: This latest batch of numbers might still underrepresent the level of disdain shareholders have for this board.

Any corporate election that doesn’t receive 95 to 98 percent support from shareholders for the incumbent management and board is an anomaly. Yahoo’s first press release from last Friday suggested that, despite all the hubbub of the failed merger talks with Microsoft and public criticism from Carl Icahn and others, Yahoo shareholders had let the incumbents off the hook. Chairman Roy Bostock and CEO Jerry Yang were re-elected with 79.5 percent and 84 percent support respectively. These relatively benign results (compared to last year’s), combined with the fact that there were not more pointed questions at the meeting last week, led some observers to conclude that this board had “faced down” its critics.

Not quite. Gordy Crawford of Capital Research Global did all Yahoo shareholders a favor by demanding a recount. Yahoo and Broadridge complied. And results of that recount were alarmingly different from the first set of numbers. We’ve all heard of +/- 4 percent in polling, but when was the last time you heard of +/- 50 percent?

The recount might set a modern-day record among S&P 500 companies for the most “withhold” votes for a board in a corporate election. Only V.J. Joshi, head of HP’s Printer group, got off without a serious warning from shareholders (a 7 percent “withhold” vote). The “withhold” vote for Bostock was 39.6 percent, not 20.5 percent as originally reported. And 33.7 percent of Yahoo shareholders withheld their support from Yang, not 14 percent. Other Yahoo directors who fared poorly in the election were Gary Wilson (27.7 percent of votes withheld) and Compensation Committee membersRon Burkle (37.9 percent withheld) and Art Kern (31.1 percent withheld).

What would we all be doing today if Gordy Crawford had never called for a recount? If a “tabulation error” happens and no one is there to hear it, did it happen at all? We will never know.

And there will likely be more shoes to drop in this tragedy of errors. This “tabulation error” was only one of two major question marks surrounding last Friday’s initial voting results. Yahoo easily made Broadridge the fall guy for this first error. The second error–how few eligible shares were counted in the final tally–isn’t so easily eluded. And for that, Yahoo will be the fall guy.

Only 75.8 percent of the eligible shares as of the June 3 record date were voted in this election. After such intense media scrutiny in the past few months, it seems odd that so few investors participated.

Last weekend, I dove into the numbers in detail and reviewed them against numbers from the last two Yahoo elections. On Sunday night, I wrote about the most recent Yahoo shareholder vote, and verified that there were 200 million fewer votes cast this year compared to the average over the last two years. I called on Yahoo to appoint an independent third party to review and certify the voting process.

Yesterday, as news of the voting irregularities circulated, I received a number of complaints from frustrated shareholders. Some claimed they had received multiple proxies from Yahoo over the last month, with several arriving Aug. 4–the Monday after the election. Some said they had had trouble voting by phone. Others, who had initially voted for Icahn’s slate, said when they tried to re-vote against the Yahoo board, they weren’t able to do so. How many other shareholders encountered similar difficulties? Without a full inquiry, we’ll never know.

These missing votes could have had an even more significant impact on the overall results. For example, Chairman Roy Bostock received “for” votes from fewer than half of the total shares eligible to vote (only 45.8 percent of the 1.4 billion shares eligible to vote). He truly lacks the approval of the majority of the shareholders he is supposed to represent. With a 47 percent vote, director Ron Burkle also lacks majority support. And while CEO Jerry Yang won majority support, he did so by the skin of his teeth, with just a 50.2 percent vote.

Governance Matters

At Friday’s meeting, I asked Jerry Yang, Yahoo President Sue Decker and Roy Bostock about three issues that suggest to me that Yahoo’s governance oversight has been lax.

(1) Why did Yahoo sell Overture Japan (a $396 million-per-year business) to Yahoo Japan for $13 million last August? Did Yang, who sits on Yahoo Japan’s board, recuse himself from the negotiations? Who negotiated on behalf of Yahoo and why did they agree to such a low price when Yahoo has a habit of paying three-to-five times revenues for companies like Zimbra, Blue Lithium, and Right Media?

(2) Sue Decker serves on three Fortune 500 boards (Intel, Costco, and Berkshire Hathaway). Her duties to those companies required her to attend at least 22 meetings last year, according to proxy filings. And each meeting required significant preparation. As a Yahoo shareholder, I fail to see how outside commitments like these benefit Yahoo. Are they really necessary? Shouldn’t Decker drop a few of them until Yahoo finds solid footing again?

(3) About a third–31-36 percent–of Yahoo shareholders voted against the re-election of Roy Bostock and fellow Compensation Committee members Ron Burkle and Art Kern last year. Yet all three continue to sit on this committee (or the Board). Why? And why did they agree to pay outside directors average total compensation of $500,000 last year? Google’s outside directors were paid $250,000, on average, for their services last year. Sue Decker received $2,700 for sitting on the Berkshire Hathaway board (and $110,000 per year for serving on the Intel and Costco boards). Why is Yahoo paying its directors so much?

I found the trio’s answers to these questions unconvincing. Particularly surprising were Bostock’s comments on Compensation Committee member tenure and compensation.

In the first place, Bostock said while 32 percent of shareholders voted against his reelection last year, 68 percent voted for him. And that’s not bad, he said. This glass-half-full logic explains why he has never bothered to explain to shareholders why he, Burkle and Kern have remained on the Compensation Committee and the Yahoo Board.

Second, Bostock disputed my assertion that Yahoo’s outside directors were paid an average of $500,000 last year. When I asked him if he was definitively stating that he did not receive compensation of about $500,000 last year, he said “yes.” Yet, according to Yahoo’s own proxy statement, Bostock earned total compensation of $499,264 last year. 2007 compensation for Yahoo’s other board members was as follows:

• Ron Burkle: $482,046
• Eric Hippeau: $496,674
• Vyomesh Joshi: $519,520
• Art Kern: $496,990
• Bobby Kotick: $492,774
• Ed Kozel: $516,202
• Mary Agnes Wilderotter: $205,832 (for five months of service; annualized $493,997)
• Gary Wilson: $482,046

The average compensation for each Yahoo outside director in 2007: $497,531.

Third, Bostock also claimed that this year’s vote would be a far better indication of shareholder support for Yahoo’s Compensation Committee than last year.With 39.6 percent of shareholders withholding support from Bostock and 37.9 percent withholding it from Burkle, isn’t it time for them to step aside?

Fool Me Once, Shame on You; Fool Me Twice, Shame on Me

Given all this, I am deeply concerned that my interests and those of all Yahoo shareholders are not being protected by the company’s board. We need to know why 200 million shares were missing from this year’s vote as compared to the last two years’. We need to know why so many proxies were mailed late to shareholders (on our dime). We need to know why so many shareholders are questioning whether their votes were counted. Yahoo will try to sweep all these concerns under the rug, but we shouldn’t allow it. The company should immediately appoint an independent third party to address these questions and assure shareholders that their votes were properly counted.

Immediate Changes to the Board

Also, Yahoo needs to immediately make some changes to the composition of its board. Roy Bostock and Ron Burkle should do the honorable thing and step down from this board.

In truth, this should have happened a year ago. One wonders what might have happened in the last 12 months with Microsoft negotiations had Yahoo acted swiftly, following the 2007 annual meeting, to remove them.

Eric Jackson is the Founder and Managing Member of Ironfire Capital LLC, an activist hedge fund. In 2007, he founded the "Yahoo! Plan B" group, a web-based group of 150 Yahoo shareholders who own more than 3.2 million shares in a campaign to change the company’s direction.

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Yahoo! Tech Ticker: Jackson: Anger Level "High" as Shareholder Meeting Begins

Posted Aug 01, 2008 12:44pm EDT by Aaron Task in Investing, Internet, Media

Related: yhoo, msft

It's the calm before the storm. I'm sitting outside the Imperial Ballroom at the Fairmont Hotel in San Jose where reporters and shareholders await the start of Yahoo's annual meeting at 10 a.m. PT.

Ahead of the meeting, the big buzz is about an LA Times story reporting that former AOL chief Jon Miller will not be joining the newly configured Yahoo board, as was widely expected. Sources here are dismissing the story, which wasn't well sourced. But this is obviously a big development and I'll update the situation if/as developments warrant.

A short time ago, I caught up with Eric Jackson, founder of activist hedge fund Ironfire Capital, whose effort to oust the entire Yahoo board has garnered pledges totaling some 3.2 million shares.

Unlike many others, Jackson's main gripe with Bostock, Yang & Co. is not that Yahoo failed to get a deal with Microsoft. Rather, it's the struggles in the company's core business, which he notes has deteriorated in the year since Yahoo's last annual meeting.

Jackson is expecting an even higher level of outrage this year vs. 2007, when three directors received more than 30% "against" votes, precipitating the end of Terry Semel's reign as CEO.

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Yahoo! Withhold Vote Count from 2008 Annual Meeting

Here is the final vote count released by Yahoo! yesterday afternoon of the votes for the directors. Kudos to Yahoo! for releasing these numbers the day of the meeting. Last year, Yahoo! waited 7 weeks before releasing the numbers in the very back of their 10-Q.

As expected, the members of the Compensation Committee (Roy Bostock, Ron Burkle, and Art Kern) received a high number of "against" or "withhold" votes. Unexpected: the large number of votes cast against Gary Wilson.

It's also worth noting that only 75% of eligible votes were cast. This is an unusually low number. I would guess that several shareholders who voted for Icahn's gold proxy did not re-vote and that those votes were thrown out (as per Mike Callahan's comments at the meeting). Therefore, the "against" votes below are actually higher in terms of the percentage of votes cast.

I will comment more on the meeting in the coming days. For now, here are the numbers....

Director Shares For % For Shares Withheld % Withheld
Roy J. Bostock 832,023,657 79.5% 214,071,927 20.5%
Ronald W. Burkle 849,373,291 81.2% 196,722,293 18.8%
Eric Hippeau 948,862,579 90.7% 97,233,005 9.3%
Vyomesh Joshi 971,594,650 92.9% 74,500,934 7.1%
Arthur H. Kern 814,871,925 77.9% 231,223,659 22.1%
Robert A. Kotick 967,044,818 92.4% 79,050,766 7.6%
Mary Agnes Wilderotter 964,939,727 92.2% 81,155,857 7.8%
Gary L. Wilson 856,006,576 81.8% 190,089,008 18.2%
Jerry Yang 893,055,602 85.4% 153,039,982 14.6%

At the meeting, stockholders also ratified the appointment of the Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, with 1,021,286,375 shares voting for, 9,952,603 shares voting against and 14,856,606 shares abstaining. Stockholders also voted to reject a pay-for-superior-performance proposal, with 339,808,082 shares voting for, 681,650,539 shares voting against and 24,636,963 shares abstaining. Stockholders also voted against a proposal relating to Internet censorship, with 54,531,125 shares voting for, 889,546,203 shares voting against and 102,018,256 shares abstaining. A proposal offered to amend Yahoo!'s Bylaws to establish a Board committee on human rights failed, with 41,874,370 shares voting for, 932,055,232 shares voting against and 72,165,982 shares abstaining.

Total shares represented at the meeting were 1,046,095,584, representing 75.8% of the 1,381,008,701 shares outstanding as of the record date, June 3, 2008.

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San Jose Mercury News: Small shareholders get a chance to question Yahoo's Yang

By Elise AckermanMercury News
Article Launched: 07/31/2008 05:43:19 PM PDT

After successfully fending off takeover attempts by Microsoft and billionaire Carl Icahn, Yahoo Chief Executive Jerry Yang could face a new group of critics Friday: Mom and pop shareholders.
For months, Yang has taken a beating for turning down Microsoft's offer to buy Yahoo for $33 per share. Institutional investors took the unusual step of scolding Yang in the press, while Icahn released withering tirades in the hope of unseating Yang at the annual meeting, which will be held Friday morning in San Jose at the Fairmont.

Yang reached a settlement with Icahn. But there could still be high drama, as small shareholders take advantage of their one and only chance to directly address Yang and his management team.
"Since all the votes have been cast before the meeting, all that's really left is the theater," said Gary Lutin, an investment banker who conducts shareholder forum programs.

While Yahoo's management personally reached out to big institutional investors during the proxy battle with Icahn, individual stock holders were left to read about the takeover fight in the media. A small but vocal group, individuals collectively own about a 10 percent stake in Yahoo. Traditionally, the annual meeting has provided them an opportunity to have their voices heard.

"I want to hold this board and management team accountable for the last year," said Eric Jackson, who founded his own investment firm, Ironfire Capital, after leading a grass-roots
protest last year that culminated with the resignation of Terry Semel, Yahoo's former chief executive.

Jackon, who flew in from Florida on Thursday, said there has been "scant improvement" in Yahoo's performance during the past 12 months. Indeed, the company has lost 26 percent of its value since the last annual meeting. Yahoo closed on Thursday at $19.89.

This year's meeting is expected to follow a traditional format: Yang will give a presentation about the state of Yahoo's business and shareholders will be given a final chance to vote their ballots as well as to step up to the microphone.

On that ballot are five proposals. Yahoo is asking shareholders to elect its nine nominees for the board, who are now unopposed, and to approve PricewaterhouseCoopers as the company's accounting firm.

In addition, Yahoo wants shareholders to vote against a proposal regarding pay-for-superior-performance that was submitted by the United Brotherhood of Carpenters Pension Fund, and to reject a proposal on Internet censorship that was submitted by the City of New York Office of the Comptroller and another regarding the establishment of a board committee on human rights.
One shareholder who won't be waiting for the mic is Carl Icahn. In a blog post Thursday morning, Icahn wrote: "It will not do shareholders or Yahoo any good to have the annual meeting turn into a media event for no purpose."

Icahn said he had met with Yang and Board Chairman Roy Bostock and while he still disagrees with them on many points, he said, "I have great hope 'this will be the beginning of a beautiful friendship."'

Under the terms of Icahn's settlement with Yahoo, the company will expand its board by two seats and appoint him as a director "no later than one business day" after the annual meeting.

One of Yahoo's directors, Robert Kotick, will resign and the board will then have two weeks to appoint two other directors from a list that includes Jonathan Miller, former chief executive of AOL, and Lucian A. Bebchuk, Frank J. Biondi, Jr., John H. Chapple, Mark Cuban, Adam Dell, Keith Meister, Edward H. Meyer, and Brian S. Posner, each of whom was on Icahn's slate of director nominees.

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The AP: Yahoo to face shareholder wrath at annual meeting

By MICHAEL LIEDTKE – 4 hours ago

SAN FRANCISCO (AP) — Yahoo Inc.'s recent truce with investor Carl Icahn didn't pacify many shareholders who remain on the war path heading into the Internet company's annual meeting Friday.

The slings and arrows are expected to include a significant number of votes opposing the re-election of the company's current board of directors and a fusillade of criticism.

Yahoo Chief Executive Jerry Yang, in particular, will probably get an earful after spurning a $47.5 billion takeover bid from Microsoft Corp. in early May.

Since Microsoft withdrew that offer, Yahoo's stock price has plunged 30 percent to leave the company's market value nearly $20 billion below what shareholders would have been paid if Yang and the rest of the board had accepted the bid.

"The Microsoft negotiations were just the latest example of the negligence by this board," said Eric Jackson, a Yahoo shareholder who plans to confront Yang during Friday's meeting. "There is still a lot of anger and frustration among shareholders right now."

Jackson, who represents a group of stockholders with about 3.2 million shares, made an impression at Yahoo's meeting last year when he ripped the performance of then-CEO Terry Semel. Just six days after that skewering, Semel stepped down as CEO and surrendered the reins to Yang, Yahoo's co-founder.

Yahoo shareholders were agitated even before the breakdown in Microsoft talks because the company's profits and stock have been sinking for several years, despite an Internet advertising boom.

Since 2005, Yahoo has lost nearly half its market value. Meanwhile, the stock of rival Google Inc. has climbed 15 percent to create an additional $20 billion in shareholder wealth.

Yahoo shares fell 14 cents Thursday to $19.89, slightly above their price when Microsoft made its initial takeover bid six months ago.

Despite its struggles, Yahoo still has the support of many shareholders, including one of its largest, Legg Mason Capital Management Inc. The Baltimore-based investment firm, which owns a 4.4 percent stake in Yahoo, pledged its support for the current directors two weeks ago.

"We believe the board is independent and focused on value creation for long-term shareholders," Legg Mason Chairman Bill Miller said at the time.

If there's enough opposition Friday, Yahoo shareholder Mark Nelson thinks Yang may end his attempt to turn around the company that he and David Filo began 14 years ago.

"I haven't spoken to anyone who thinks, 'Hey, this is the right team to lead Yahoo,'" said Nelson, a partner at Mithras Capital, which owns 1.7 million Yahoo shares. "I hope there will be enough shareholder pressure at this meeting for the board to realize they need to bring in someone else to run the company."

Icahn, a blunt billionaire who will join Yahoo's board next week as part of his compromise with the company, already has said Yang, 39, should be cast aside for a more seasoned CEO. That idea may get more support when two Icahn allies join the Yahoo board by Aug. 15. (Shareholders won't be able to vote on the merits of Icahn and his allies until next year's meeting. Friday's vote will be confined to Yahoo's incumbent board.)

Before he decided to work with Yahoo, Icahn had been campaigning to replace all nine of the company's directors with a slate of his own candidates. But he changed his mind in July after concluding he didn't have enough shareholder support to prevail.

Icahn remains highly motivated to boost Yahoo's stock price because he paid about $25 per share to acquire a 5 percent stake in the company. But he doesn't plan to show up at the annual meeting. And now he seems willing to give Yang more time to prove he has the chops to be CEO — although his peace pact with the company now prevents him from publicly disparaging Yang or other Yahoo directors.

"While we still disagree on many points, I have great hope 'this will be the beginning of a beautiful friendship,'" Icahn wrote on his blog Thursday.

To round out its board, Yahoo must choose two Icahn-endorsed candidates from a list of nine. Two of the choices have been mentioned as possible successors to Yang — former AOL CEO Jonathan Miller and former Viacom Inc. CEO Frank Biondi Jr.

But Yang still seems to believe he is the best man for the job.

"I am as excited as I have ever been to lead this company," Yang told The Associated Press on July 22. "We have a sense of urgency to create value." In his defense Friday, Yang is expected to highlight an advertising partnership with Google that is supposed to boost Yahoo's annual revenue by $800 million. That alliance still could be blocked by antitrust regulators.

Yang also thinks Yahoo can get better at selling ads on its own.

Add it all up, and Yang believes Yahoo's net revenue will climb from a projected $5.6 billion this year to more than $9 billion in 2010. Industry analysts are highly skeptical: They predict Yahoo's 2010 revenue will be just slightly above $7 billion.

Yang won't be alone on the firing line Friday.

Roy Bostock, who became Yahoo's chairman on the same day Microsoft made its initial bid, oversaw the failed negotiations that followed. Bostock also sits on a compensation committee that approved an employee severance plan that threatens to substantially increase the costs of a takeover.

Two shareholder advisory firms — Glass, Lewis & Co. and Proxy Governance — have recommended voting against Bostock as well as the two other directors on the compensation committee, Ron Burkle and Arthur Kern. However, RiskMetrics ISS, the most influential shareholder advisory firm, supports re-electing the entire board.

Under Yahoo's bylaws, a director opposed by a majority of shareholders is required to submit a letter to resignation. But that rule won't apply in this year's election because the incumbents are technically still running against Icahn's slate. That means the current directors just need to win a plurality of the votes.

In an attempt to placate investors, Yahoo might announce a special dividend or some other extraordinary measure, such as a spinoff of its Asian assets. Microsoft proposed both ideas in July when the software maker teamed with Icahn in an attempt to buy Yahoo's search engine and break up the rest of the business.

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CNET: Yahoo shareholders meeting a case of deja vu?

July 31, 2008 4:00 AM PDT

Posted by Dawn Kawamoto

Believe in deja vu? Yahoo shareholders may when they file into the company's annual shareholders meeting on Friday.

Last year, an angry mob of investors took Yahoo's CEO to task at the company's annual shareholders meeting, citing the company's lackluster performance and the lucrative compensation awards. A week later, Yahoo CEO Terry Semel resigned from his executive post, passing the baton to company co-founder Jerry Yang.

Fast forward a year later and the situation is expected to markedly similar. When Yang takes the stage at the annual shareholders meeting, he'll likely face not only a sea of angry investors but one that will include some shareholders who are making a repeat appearance at the microphone to voice dismay.

But the tenor of this upcoming meeting is expected to be even more pitched, given that Yang and Yahoo's board rejected a $33 a share buyout bid from Microsoft in May and the stock has now roughly come full circle to where it was trading before Microsoft's initial bid of $31 a share in February.

Yahoo closed at $20.03 a share on Wednesday.

But beside the anticipated fury that is expected to unfurl at the meeting, what else may investors, employees, and Yahoo customers expect at this significant event for the Internet's search pioneer.

For starters, Yang will not be alone to fend off a potentially hostile crowd. Some, but not all, of Yahoo's current board members are expected to be in attendance, such as longtime director Eric Hippeau and newcomer Maggie Wilderotter.

Carl Icahn, the activist investor who launched a proxy fight to push Yahoo and Microsoft back to the table, nor his advisers, are likely to make an appearance at the meeting, after having reached a settlement with Yahoo last week.

Under that arrangement, Yahoo's current board of nine directors will be up for re-election to another one-year term. Based on the settlement agreement, it is anticipated that sometime between the shareholders meeting on Friday and the end of business Monday, Yahoo's director Robert Kotick will resign from the board and Icahn will be appointed to his seat. The board will also vote to expand its size to 11 members from nine.

While the settlement agreement also calls for the Yahoo board, which would then include Icahn, to fill the two newly added seats with two folks from Icahn's pool of candidates, don't expect those two new faces to be named at the shareholders meeting, said a source familiar with the company. Yahoo has until August 15 to fill those two positions.

During the meeting, Yang & Co. are expected to provide a presentation on the state of the company, in which a question-and-answer session will follow from the floor.

Investor activist Eric Jackson said he plans to make a return visit to the meeting and will once again make a case for his recommendation that investors withhold votes to re-elect certain Yahoo directors. Jackson is asking investors this year to withhold votes for compensation committee members Roy Bostock, Yahoo chairman, Arthur Kern and Ron Burkle, as well as
Hippeau, because of the length of time he has served on the board.

And while Jackson, along with advisory service to institutional investors Glass Lewis & Co. and Proxy Governance, have come out with recommendations to withhold votes or vote against several Yahoo directors, the effect will basically serve as a symbolic gesture to Yahoo's board on the level of investor dissatisfaction.

That's because the top vote-getters are the ones who will be elected to the available board seats, which means everyone will be re-elected in an uncontested race.

Nonetheless, the higher the percentage of votes cast that are marked with either "against" or "withhold," serves as barometer of investor discontent. Last year, Yahoo's board was re-elected with only 66 percent approval, whereas boards typically receive 80 percent to 90 percent of the votes cast.

And should any one director receive less than a simple majority of the votes cast, under Yahoo's bylaws they are required to automatically tender their resignation. But that too will unlikely lead to any director's ouster, given the board can vote to reject the resignation.

Yahoo, at the shareholders meeting, is expected to provide a 10,000-foot view on whether the directors received enough votes to be re-elected as a group, with the per director vote results to be released later, said one person familiar with the plans.

While the shareholders meeting is expected to bring a lot of one-day drama, keep an eye out for the ensuing two weeks as Yahoo's board undergoes a likely change in voice as Icahn and two members picked from his pool of candidates are added to Yahoo's board.

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SF Chronicle: Yahoo on hot seat despite truce with Icahn

Verne Kopytoff, Chronicle Staff Writer
Thursday, July 31, 2008

(07-30) 20:31 PDT -- Yahoo Inc.'s annual shareholder meeting was on course to be a dramatic showdown with investor activist Carl Icahn until the two sides declared a last-minute truce in their battle for control of the Internet giant.

But the detente hardly means that the event, scheduled for Friday in San Jose, will be a lovefest.
Angry investors are eager to pummel Yahoo's leadership over the company's financial slump and its failure to accept a $47.5 billion takeover bid by Microsoft Corp, among other offers. Count on Yahoo CEO Jerry Yang and his fellow board members fielding some uncomfortable questions.
"You can still expect a heated debate," said Warren Chen, managing director of research for mergers and acquisitions at Glass Lewis & Co., a proxy advisory service in San Francisco.

For much of this year, Yahoo's board has faced withering criticism for its handling of the Microsoft courtship. Many investors considered a deal an antidote to the company's otherwise depressed share price.

Icahn, who has made a career of pressuring troubled businesses to do what he wants, eventually bought 5 percent of Yahoo's shares and launched an effort to replace its board with his own slate in what is known as a proxy contest. After a nasty campaign, during which he repeatedly accused management of bungling the Microsoft negotiations, Icahn settled the matter last week instead of taking it to a shareholder vote at Friday's meeting.

As part of the agreement, Icahn will join Yahoo's board. He also gets control of two other seats, which will be filled from a list of candidates he provided, by Aug. 15.

Eric Jackson, a longtime Yahoo critic who leads a group of investors who collectively own 3.2 million shares, said the settlement with Icahn doesn't get Yahoo's management off the hook.

"With Icahn and the noise of the proxy contest gone away, you could confuse that with it being all fine," he said. "People still place enormous blame on Yahoo for the breakdown of the talks with Microsoft."

Jackson, who runs the investment fund Ironfire Capital, said he plans to withhold his votes from four Yahoo board members to express his unhappiness with the company. Board members who don't get at least 50 percent of the vote for re-election must offer their resignations, although Yahoo doesn't have to accept them.

Brad Williams, a Yahoo spokesman, said about the prospect of pointed questions at Friday's meeting, "We are looking forward to having an open constructive dialogue with our shareholders."

Analysts expect Icahn to continue to pressure Yahoo's board to sell, although his three seats fall well short of a majority on the newly expanded 11-seat body. Whether Microsoft is still interested is unclear.

Icahn will have no official role at Friday's meeting, which will be held at the Fairmont San Jose hotel. There was no word on whether he will attend as a shareholder.

Although still profitable, Yahoo is struggling amid slowing growth and stiff competition with rival Google Inc. Yang has repeatedly tried to reassure investors by touting a three-year revival plan, which includes making Yahoo a must-buy for advertisers, although many analysts call the financial projections overly optimistic.

Signaling his willingness to make hard decisions, Yang agreed to outsource some of Yahoo's search engine advertising to Google. The deal, which is awaiting regulatory approval, is expected to bring in $800 million in extra annual revenue to Yahoo.

Yang, who co-founded Yahoo as a Stanford graduate student with David Filo in 1994, started his tenure as CEO last year following the departure of Hollywood veteran Terry Semel. Given the turmoil under his watch, Yang may be under pressure to resign within a year, according to some analysts and investors.

His challenge is to boost Yahoo's share price, which closed Wednesday at $20.03, to at least $33, the amount of Microsoft's last takeover offer.

David Larcker, accounting professor at the Stanford University Graduate School of Business and co-director of the Rock Center for Corporate Governance, said that even if Yahoo's leadership gets through the shareholder meeting unscathed, investors will turn up the pressure within the next year, absent any progress at the company.

"Investors were saying we'll go along with this for now, but if nothing positive happens in the next year or so, then sure, there will be tremendous pressure," he said.

E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.

This article appeared on page C - 1 of the San Francisco Chronicle

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