TheDeal.com: Yahoo! still lacking a significant catalyst

[Posted on September 24, 2008 - 10:02 AM]

We're not sure whether this amounts to truly fresh news since people have been writing about it since at least Monday, but the Financial Times is reporting that Yahoo! Inc.'s [YHOO] revamped board has given the go-ahead to negotiate a combination with AOL LLC. At this point, there shouldn't be that much to talk about since the two were reportedly in discussions when Yahoo! was madly searching for alternatives to a deal with Microsoft Corp. [MSFT], or at least looking for some leverage in any Microsoft talks.

If the two sides are talking, the question becomes whether a deal really does anything for Yahoo!, or is just the combination of one large and struggling Internet company with another. At least one analyst thinks the deal would do little for Yahoo!, though it could depend on terms.

Cowen & Co. LLC analyst Jim Friedland says he believes it's possible Time Warner could exchange AOL for a 20% to 40% stake in Yahoo!, but that valuation is likely to be a major hurdle to getting a deal done. In a research note issued earlier this week, Friedland writes that such a deal would give Yahoo! incremental scale, but that a combination of two assets that are experiencing the same secular challenges would not yield material value.

If an AOL deal is not enough to shake Yahoo! out of the doldrums, what could? Eric Jackson, a Yahoo! shareholder who has been openly critical of the company, believes there's one way the company could possibly turn things around.

"The only thing that would do that is for the company to name a new CEO who's not [current CEO] Jerry Yang and not [president] Sue Decker who would look at this thing with a fresh set of eyes," Jackson said in an interview. "I bet the shareholders at Lehman wish they would have had someone with a fresh set of eyes rather than an insider over the past eight months."

Jackson said the only time he's been optimistic about Yahoo! in the past six months was when activist investor Carl Icahn announced he was staging a proxy fight for control of the company's board of directors. But with Icahn unable to garner a majority of seats on the board, Jackson said it will be difficult for him to enact major changes at the company or to get Microsoft back to the bargaining table.

"I'm pretty skeptical whether Icahn and his colleagues are going to push this forward and do anything," he said. "They can't push Microsoft. It's up to Microsoft whether they want to do something, and my guess is that Microsoft is going to wait for Yahoo!'s shares to collapse further and try to get it on the cheap." -- David Shabelman

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TheStreet.com: Activist Investor: Stale Ideas Killed AIG, Lehman

TheStreet.com
By Eric Jackson
09/17/08 - 09:43 AM EDT

As we all try to digest the unprecedented volatility that has besieged the stock market this week, with Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) and Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) now washed away, there is one question that is often repeated: How could so many smart people get things so wrong? It wasn't hubris or laziness. It was the inability of the board members and CEOs to look at the problems facing their companies with fresh eyes.

Newcomers like John Thain at Merrill took decisive actions to create the maximum shareholder value under the circumstances. Old-time CEOs like Dick Fuld at Lehman and Robert Willumstad at AIG(AIG Quote - Cramer on AIG - Stock Picks), who is a new CEO but has been on AIG's board since 2006, dawdled, and their companies are now paying the price -- one with bankruptcy and the other agreeing to a government bailout last night.

Management theorists Don Hambrick and Danny Miller conducted a study on the seasons of a CEO's tenure 20 years ago. They found that CEOs had the freshest eyes early in their tenure. They revisited old decisions made by their predecessors and charted a course for the organization under their leadership. After only a few years though, the CEOs began running their companies from within the prism of their past decisions. If their strategy didn't work out, they would defend it, stating that it simply needed more time.

This tendency for defensively believing in past decisions is not a CEO condition -- it's a human condition. It's not a trait that gets noticed when times are good, but it can be a deadly trait in so-called "perfect storm" times like the one we're currently living in.

It's up to the boards to hold CEOs responsible for their decisions by questioning them when warranted. Sadly, that didn't happen in the case of Lehman and AIG. In the case of both, it cost them the companies.

In this environment, even the most gilded companies' CEOs -- such as Lloyd Blankfein of Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) and John Mack of Morgan Stanley (MS Quote - Cramer on MS - Stock Picks) -- need to be questioned by their boards. Worst-case scenarios must be discussed and preparations made.

Just because a CEO has a long tenure at a company and holds the title of chief executive doesn't mean he or she will fail; it simply means he or she needs to be on guard against "conventional wisdom." Conventional wisdom a few months ago was that Lehman was no Bear Stearns.

Wachovia's (WB Quote - Cramer on WB - Stock Picks) new CEO, Robert Steel, appears to be using his financial industry experience (he formerly served as head of equities at Goldman and undersecretary of the Treasury), as well as his lack of Wachovia tenure, to make quick moves in downsizing and separating the good and bad aspects of the bank in his first couple of months on the job. It warrants watching if he can be successful in doing what's needed at that bank in comparison to Thain's moves at Merrill.

Vikram Pandit, the CEO of Citigroup (C Quote - Cramer on C - Stock Picks), deserves a lot of scrutiny. He came to Citi after his Old Lane hedge fund was acquired. So far, he has done little to separate himself from the model that Sandy Weill built and for which Chuck Prince acted as caretaker. Will Pandit be just another caretaker? How will Citigroup be defined under his tenure? We have yet to find out. In the meantime, the company's stock drifts lower with the industry, and Citigroup continues to pay a dividend it can't afford. There is no urgent capital-raising needed yet, but Pandit needs to have the pressure kept on him.

In these difficult times, all CEOs and directors must come to work each day with fresh eyes to confront the problems they face. No matter how much past success they've achieved, no matter how esteemed these CEOs are, Lehman and AIG have taught us how easily everything that it took generations to build can be lost.

There, but for the grace of God, go I.

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Google's Interest in GeoEye and Geospatial Imagery

A few days ago, I wrote about Google's potential interest in buying geospatial imagery company, GeoEye. Here are some additional reasons for why Google might want to acquire GeoEye and control the actual satellites and additional analytical tools which GeoEye possesses as a supplement to their Google Earth product.

One of the first companies which Google acquired after it went public in 2004 (for an undisclosed sum) was Keyhole -- the foundation piece for Google Earth. As a carry-over from that acquisition, Google has continued to sell its Google Earth imagery to end users for a fee: Google Earth Plus (for a $20 annual subscription) and Google Earth Pro (for a $400 annual subscription).

At first glance, it doesn't seem to make sense for Google to keep such a subscription model in place with its dominant Google AdWords Search model. Yet, Google aspires to make money beyond AdWords. They have continued to invest in a competitive suite of applications as an alternative to Office (called Google Apps). They have done so, because they believe people will save their data and files through Web services in the future (in the cloud) rather than on their PC. If this occurs, Microsoft is tremendously weakened and Google grows.

Google Earth is yet another way for Google to make money. However, it is less a money-maker on its own, rather than a way of driving loyalty and therefore revenues back to Google Search and Google Apps. For Google to keep its Google Earth subscription model in place 4+ years since the Keyhole acquisition suggests it has further plans for this model of selling its high-end earth imagery. It is not a mistake that it has maintained this model.

Consider this also. Google is interested in developing its relationship with Government (the largest customer for satellite imagery). Go to www.google.com/federal for more evidence of this. Google's focus in this niche centers on 3 services: Search, Geospatial Images, and their Google Apps suite of Web services (Gmail vs. Outlook, their own apps vs. Office). (To see an example of a government client that has used Google Earth to improve their efficiency, see this case study on the US Forest Service.) As Google develops their relationships with such a client, it becomes much easier to go back and communicate the benefits of search and Google Apps. Microsoft would have to more heavily invest in its Virtual Earth offering to keep up with Google (or perhaps acquire GeoEye's smaller competitor, DigitalGlobe -- who's revenues at the time it filed its S-1 earlier this year were smaller than GeoEye's).

One government client that Google has great interest in developing a relationship with is the National Geospatial-Intelligence Agency (or NGA). NGA also happens to be GeoEye's largest customer. This coming week, Google is a Gold Sponsor of the NGA's Industry Day. This is a classified conference for US citizens only at which the NGA will lay out their plans for the coming year. (GeoEye is a Silver Patron for the conference.) Google will be continuing to push the benefits of Google Earth and Google Search Appliance (its tool for pulling key information from government clients' own records) at this conference and afterwards. They would not sponsor this conference if they did not see opportunity in this government vertical in the years ahead. (GeoEye's chief competitor, DigitalGlobe, is interestingly not a sponsor at this event.)

Some evidence that the NGA has big plans in the years ahead came out last week when the IT consulting firm NJVC, who works closely with the NGA and is also a Gold Patron at the conference mentioned above, announced that it is expanding its square footage by 33% and hiring 100 new employees in expectation of significant growth in the firm in the coming 4 years. NGA is NJVC's largest customer.

Matt O'Connell, CEO of GeoEye, has also discussed rapid expansion to keep up with planned growth in orders from NGA and other customers now that the new GeoEye-1 satellite was successfully launched last week. GeoEye did $200 million in annual revenues a couple of quarters ago and will certainly exceed that in the coming 2 quarters now that they've successfully launched their newest GeoEye-1 satellite last week. The NGA will continue to be a very important customer to GeoEye.

Google also clearly sees opportunity here in this space. The question for Google is how can it take Google Earth to the next level? This is where GeoEye becomes interesting as an acquisition target. By owning GeoEye, Google would own the proprietary images it captures from its satellites. There would continue to be the need to invest in future satellite launches to stay ahead with the most up-to-date technology but Google certainly has the capital and the interest in space to do this. Owning the satellites also allows Google to develop the tools and unique services which can become integrated into Google Earth but (perhaps more importantly down the road for Google) its Android operating system which it will roll out on future mobile handsets (think highly unique location-based services here).

Google could sit back and just buy images (as Microsoft and Yahoo! do) from GeoEye and DigitalGlobe, letting them take the risk of launching the satellites, but their opportunities to develop proprietary location-based services would diminish (or become easier for Microsoft, Yahoo! and others to copy down the road).

GeoEye is a more compelling potential acquisition target for Google than Digitalglobe for two reasons: (1) it has the newest satellite in space today with the most advanced features and (2) it has a cadre of tools for using the images which their private competitor DigitalGlobe lacks. These tools came, in large part, from the MJ Harden acquisition done last year by GeoEye. More tools, from Google's perspective, means more usage of Google Earth from its clients and therefore more usage of Google Search and Apps.

Additionally, Google and GeoEye have grown closer in these last few weeks. The two companies agreed that GeoEye would not sell its images from GeoEye-1 to any other online portal. Google's co-founders, Larry Page and Sergey Brin, were at the launch of GeoEye-1 in California last Saturday (Page remember has signed up to be launched into space himself in 2011).

Google doesn't buy GeoEye for $200 million a year in revenues. It buys GeoEye to make Google Earth and Android truly remarkable in the years to come, as well as cementing Google's place in the Government vertical with its core Search and Apps offerings.

A deal before the end of the year would make sense as GeoEye is beginning discussions with other parties about funding its next satellite GeoEye-2. Google has the opportunity to control the specs of what that would look like if they do the deal now instead of waiting and having to share the specs with other parties.

At the time of publication, Jackson was long GeoEye.

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

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TheStreet.com: Activist Investor: Why Google Cares About GeoEye

09/11/08 - 10:00 AM EDT
By Eric Jackson
TheStreet.com

GeoEye (GEOY Quote - Cramer on GEOY - Stock Picks) is a relatively small company that takes pictures of the Earth from three satellites it operates in space. You've probably never heard of it. However, Google (GOOG Quote - Cramer on GOOG - Stock Picks) co-founders Sergey Brin and Larry Page have. In fact, both attended last Saturday's launch of GeoEye's newest satellite at Vandenberg Air Force Base in California. In fact, Google's logo was on the side of the rocket that launched the satellite into space.

Why were they there, and what does it mean for Google and GeoEye investors?

I wrote about GeoEye earlier this year and have a large long position in the company. While the company has had issues largely of management's own making (delays in the launch of the satellite, minor earnings restatement and poor communication with investors), it has now overcome all of these with the near-textbook launch of the GeoEye-1 satellite last week.

GeoEye operates in a duopoly in the U.S. with DigitalGlobe, a smaller, private and less well-capitalized competitor. Both companies take geospatial images of Earth and sell those to governments and commercial customers. Until the last six months -- when GeoEye gave up some market share to DigitalGlobe, which launched its newest satellite in the sky last fall -- GeoEye was a $200-million-a-year company with 45% operating margins. It will now quickly return to that size and much more in the next year.

GeoEye-1, the satellite launched last weekend, is a game-changer for the industry. It's the first satellite to take color images of earth with the highest resolution. If you want to snap some images of a baseball plate at your local park, GeoEye-1 is up to the task. DigitalGlobe, assuming it goes public in the next year, will not leapfrog GeoEye with a better satellite for at least two years.

From a valuation perspective, GeoEye is compelling. The stock closed Wednesday at $26.31. Assuming the company returns in 2009 to its revenue run rate of six months ago, GeoEye is trading at 5.2 times 2009 earnings. BCC Research estimates that GeoEye's industry market is increasing from $1.9 billion this year to $3.2 billion by 2012. With that type of growth rate, a valuation of 12-15 times 2009 earnings is more than justified for GeoEye today, which would put shares at $60-$76.

The largest risk facing GeoEye -- and weighing on the stock -- had been the prospect of an unsuccessful launch of GeoEye-1 last Saturday. That risk is now past. In 30-45 days, GeoEye's largest customer, the National Geospatial-Intelligence Agency for the U.S. government, will sign off on the quality of the first images and start to place orders with the company.

The Google Factor

All of these valuation assumptions don't take into account that GeoEye announced, just days prior to the launch, that it would provide images from GeoEye-1 to Google exclusive of other online portals. The company has yet to give financial details of the arrangement, but Google clearly cares about GeoEye, as the attendance of the founders at launch confirm.

GeoEye is strategic to Google from a couple of angles. First, GeoEye will provide images to Google Earth and Google Maps. More importantly, GeoEye is intimately tied with Google's plans for Android, the mobile operating system it will roll out to handset providers later next year. Google is effectively buying proprietary mapping technology from GeoEye that can be later integrated into new location-based services we have not yet seen.

For example, with high-resolution images from a satellite that circles the earth several times a day, it becomes possible to integrate real-time traffic information when plotting traffic directions. It also becomes possible to easily track GPS-equipped vehicles.

GeoEye also has significant mapping tools that can be used to analyze multiple or time-series images, an interesting feature that could be interesting for Google Earth and Google Maps to implement.

If the connection between Google and GeoEye came down to merely improving Google Maps, you might have expected a Google product manager to attend last week's launch, not the co-founders. The fact is that Brin and Page have a personal interest in space. From investing early in Google Earth to last year's news that Brin signed up to take a personal space flight in 2011.

While some Google critics have poked fun at the company's interest in space, you cannot watch a news broadcast now without seeing some wide-angle image of a country that zooms into the city or location of interest to the story courtesy of Google Earth. There is also a long-term secular trend that we want to know exactly what's happening now in any place globally. The most accurate and up-to-date images of earth are part of that trend, and GeoEye-1 falls in the sweet spot of that demand. Google intends to take advantage of that (to say nothing of the government's continued interest in this information).

Put all of this together and you need to attach a premium to GeoEye's shares as a potential takeover target by Google beyond the price target I mentioned earlier. GeoEye is currently putting together plans to build GeoEye-2, its next-generation satellite for launch in 2011. Google just might want to have that satellite exclusively for its own use. If so, Internet giant would likely want to purchase the company in the next six months, before others agree to funding terms with GeoEye to develop that satellite.

Keep your eyes on the sky for a fast-rising GeoEye stock price.

At the time of publication, Jackson was long GeoEye.

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

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TheStreet.com: Activist Investor: GeoEye's Seeing Things My Way

08/25/08 - 02:22 PM EDT
From TheStreet.com
By Eric Jackson

My first Activist Investor column for TheStreet.com in March featured GeoEye (GEOY - Cramer's Take - Stockpickr), a satellite company in which I had just started an activist campaign.

This investment is down more than 20% since the start of the year (despite a 50% run-up since mid-July); however, the company's management has been receptive to recent behind-the-scenes activist efforts. GeoEye looks ready to make significant gains in the remainder of this year and into next year after the launch next Thursday of its newest satellite (GeoEye-1).

GeoEye leads the market, in terms of revenue, in operating satellites that capture geospatial images used by government and businesses. Its images are used by such customers as Google Earth, the U.S. Department of Homeland Security as well as agriculture companies, city developers and planners, real estate developers, video-game makers and companies that develop location-based applications. GeoEye offers a whole set of tools and services for customers to package its images (including historical images from its library) and help them analyze and dissect the information.

What first attracted me to small-cap GeoEye was its low valuation. It had a trailing price-to-earnings ratio of 12 in February, despite projections of growing earnings by 20% each year for the next five years. Unfortunately, that figure kept dropping until it was below 6 in early July.
Up until the last couple of quarters, when the company started losing some orders to competitor DigitalGlobe, which currently operates the newest satellite in the sky, GeoEye was generating $200 million in revenue with operating margins in excess of 45%. If you assume a rapid return to these numbers (and likely higher) once GeoEye-1 launches next week, this company's shares can be bought for just above 4 times next year's earnings.

The company's stock price has slumped in the past six months for several reasons. Its planned launch of the GeoEye-1 satellite had been delayed several times and investors have worried it would be delayed again. The successful launch of the satellite is a gate for future earnings potential. Until the launch happens, however, customers will go to GeoEye's competitor, which currently has the best satellite in the sky.

Other uncertainty has weighed on the stock price. GeoEye announced earlier this year that it would need to restate a small part of its previous year's earnings based on advice of its accountants to ensure they had properly accounted for previous net operating loss carry-forwards.

One of GeoEye's greatest problems has been poor communication. Management has done a lousy job outlining its competitive advantages to investors. This poor communication only exacerbated investors' concerns about the GeoEye-1 launch delay and the earnings' restatement.

It got so bad that one analyst, during the first-quarter earnings call, excoriated GeoEye's CEO and CFO for their poor job of communicating. He directly blamed this failure for the company's low P/E ratio.

Positive Signs

But some things have gone on behind the scenes in the past six months that should please investors. First, GeoEye's No. 1 competitor, DigitalGlobe, filed to go public. This meant it had to open its books to the public in an S-1 filing with the Securities and Exchange Commission, a disclosure that revealed it was smaller than GeoEye. DigitalGlobe's decision to go public also allowed Matthew O'Connell and Henry Dubois, GeoEye's CEO and CFO respectively, to speak more freely about their business without fear of giving their private competitor an unfair advantage.

The second thing that has happened is that O'Connell and Dubois have listened to the criticism of shareholders and learned from it. The recent second-quarter earnings call was much improved over previous ones. On the most recent call, held earlier this month, they laid out all the details of the Sept. 4 satellite launch and cleared up what they had recently concluded about their recent restatement in a way that comforted investors. The stock has held its recent gains, instead of dropping precipitously as it did after the first-quarter call.

GeoEye has also been responsive to private criticisms I've directed to management, so I would like to give them public credit for this.

When I launched my activist campaign against GeoEye in the spring, I outlined in a letter to GeoEye's chairman and CEO three important but fixable problems I urged them to correct:

1) raising the company's price-earnings ratio through better investor relations and better communication in general,

2) clearing up the earnings delay immediately, and

3) ensuring management and the board had enough "skin in the game" and adding new board members to strengthen the overall team.

I have spoken to Matt O'Connell and Henry Dubois several times since I sent my first letter. In my view, communication with investors is much improved when it comes to discussing what the company is doing to achieve its immediate-term goal of a successful satellite launch, frequent pitching of the strong GeoEye story through investor meetings. Speeches at investment banking conferences have clearly laid out why GeoEye is significantly ahead of DigitalGlobe and why the market for geospatial images is expected to explode in the years ahead.

On its most recent call, GeoEye specifically mentioned how it's spending much more time talking to investors and telling its story. GeoEye is now covered by four analysts (all with buy ratings) compared to the one analyst it had last quarter. GeoEye has spelled out how its newest satellite will be the industry-leader for the next two years until DigitalGlobe launches its next satellite.

Also, last week, they hired their first chief technology officer, whose job it will be to better communicate the technical advantages of GeoEye's images and how they will play a part in the burgeoning location-based services market. This last point is still what has been missing in the recent GeoEye presentations and speeches.

The earnings restatement has now occurred, and it did not prove significant. Past years' lost earnings should be equaled out by a tax credit awarded later this quarter. There has been no cash impact on the company and the company still has a strong balance sheet to see it through the successful launch of GeoEye-1.

In terms of management and the board improving its makeup, there is still some work to do. O'Connell, Dubois and some others on the management team purchased some stock earlier this spring. I had encouraged them to do so as a sign of confidence in the company. Unfortunately, they only bought about $18,000 each. In my opinion, that's not enough -- especially given the generous executive pay they receive.

The CEO, O'Connell, deserves a pass on this issue, as he came from Wall Street to run GeoEye a number of years ago and had to make a big personal investment in the company. I know he understands the concept of "skin in the game." I wish he would encourage other officers and directors to follow his lead. Management needs to realize that stock options given to them as part of their compensation is "found money," compared to open market stock purchases.

On the issue of improving the board, there are already a number of strong individuals on this board, many with a government background (which makes sense as the government is GeoEye's largest customer and a co-investor in the new satellite). This board still could use some people with more of a commercial background, as that's a growing customer area for GeoEye.

However, when I spoke to O'Connell, I made it clear that I was much more interested in seeing the company tell its story effectively, clearing up any restatement uncertainty and encouraging insiders to buy some more stock than discussing the board composition issue. I believe they've prioritized the criticisms appropriately.

The bottom line is that GeoEye has listened to its critics and taken action to address many of the criticisms. Management needs to go further in some areas, but they deserve credit for what they've done to date. As an investor, I feel much more confident in this company's prospects based on my interactions with management and seeing them make some progress against these weak points.

GeoEye's biggest weak point remains communicating its powerful story to investors. It can't rely on its CTO to explain its competitive advantages to Wall Street. This is the job of the CEO and CFO, and they've only improved from a "C-" to a "C+" on their communication skills in the last three months.

All eyes are now on the Sept. 4 launch of GeoEye-1. The company needs to continue to actively communicate with investors on the day of and the day following the launch. The launch team has a 98% success rate over the last 150 launches. After launch, the company will perform tests to ensure everything is working correctly, and its largest customer, the National Geospatial-Intelligence Agency, will sign off that everything looks good at the end of October. That sign-off will allow the agency to agree to a new service-level agreement with GeoEye to buy images in the quarter ahead. Other customers will likely follow.

The launch should therefore have a large catalyst effect on the stock price. A more reasonable valuation for the stock would be 12 times next year's earnings, or triple its current price. It might take a few quarters to get there, but patience and activism are likely to be rewarded.

At the time of publication, Jackson was long GeoEye.

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

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TheStreet.com: Activist Investor: Yahoo! Mustn't Fumble Asian Assets

By Eric Jackson
08/21/08 - 12:19 PM EDT
from TheStreet.com

What will Yahoo!(YHOO - Cramer's Take - Stockpickr) and its board do next to try to win back its shareholders' support?

It's highly likely they will seek to appease disgruntled shareholders by unlocking value in their collection of Asian assets, which currently make up 35% of the value in Yahoo!'s $20-a-share valuation. But Yahoo! shareholders need to be vigilant as to how this is done, especially with regard to the nonpublic entities Taobao.com and AliPay.com (the eBay (EBAY - Cramer's Take - Stockpickr) and PayPal of China, respectively).

It's been a difficult seven months for Yahoo! shareholders, who saw their shares increase in value to $30 from $19, only to drop back to pre-Microsoft (MSFT - Cramer's Take - Stockpickr) bid levels. At the shareholder meeting earlier this month, Yahoo!'s board strongly defended itself, saying it had done everything possible to achieve a deal with Microsoft. It also laid out the case for why its go-it-alone strategy would succeed and why Yahoo! still has an enviable array of assets that neither Microsoft nor anyone else can replicate anytime soon.

Yahoo! does have great assets -- that's why I first invested in the company two years ago. However, the company's board is weak, and it has exerted poor oversight while approving lavish pay to its executives and board members. Even with Carl Icahn and his colleagues Frank Biondi and Gary Chapple joining the board, this is still largely the board that former CEO Terry Semel assembled five years ago. A board that continues to be weak has the potential to continue to make poor decisions on behalf of its shareholders. That might happen sooner rather than later.

I attended Yahoo!'s most recent shareholder meeting and asked about several governance-related incidents over the last year that I felt weren't in shareholders' best interest. For example, Yahoo! decided last August to sell its $400 million-a-year Overture Japan business to Yahoo! Japan (which was essentially a sale to Softbank, the other owner of Yahoo! Japan) for $13 million. That's a far cry from the three to five times multiple of annual revenue Yahoo! typically has paid for venture capital-backed companies such as Zimbra, Rivals and Right Media.
Such a deal seems to have greatly benefited Softbank at the expense of Yahoo!'s shareholders. (And Yahoo! hasn't offered me a detailed explanation, if there is one.) Right or wrong, this appeared to be a sweetheart deal. If this is how Yahoo! operates, it's not unreasonable to believe the company could do the same thing with its Chinese partner Alibaba.com.

Chief Financial Officer Blake Jorgensen said during the shareholder meeting that Yahoo!'s collection of Asian assets (from its stake in Yahoo! Japan, Alibaba in China, and GmarketGMKT in Korea) are worth about $7 a share to Yahoo! shareholders at today's market prices. However, as Jorgensen noted, Yahoo! maintains significant ownership (through its Alibaba stake) in two significant private Chinese companies: Taobao.com and AliPay.com.

Both Chinese companies have great potential. They already are the clear leaders in their verticals in China. (eBay just retreated from the Chinese market because of its inability to compete.) Taobao.com and AliPay.com also have chosen deliberately to grab market share in the past few years by not charging users' fees. As you can imagine, such pricing has helped their user base explode. The costs for both companies are very low and they both know they can turn the meter on at any time with a very large payback.

And so here's the governance issue: How should these assets be valued if Yahoo! wants to extract value from its stake in these private companies? If you valued them today, there is no revenue and the earnings are negative. But in two years, when each company turns its meters on and begins to generate hundreds of millions of dollars, the companies will be much more valuable.

There are two ways Yahoo! could extract value from Taobao.com and AliPay.com: Agree to a management buyout with each company's management -- most likely the management of Alibaba -- or spin off these assets to Yahoo! shareholders with the stakes in the other Asian assets.

A management buyout would be another partner-friendly sweetheart deal that would greatly enrich Alibaba insiders at the expense of Yahoo! shareholders. Therefore, a spinoff is the right thing for Yahoo! shareholders. In a spinoff, even if the shares are valued low today relative to what they will be in a few years after the private entities start charging fees, Yahoo! shareholders can decide whether to hang on to their stakes.

The management buyout approach gives Alibaba full ownership of a growing asset at a significant discount to its true inherent value. Alibaba or the management teams would gain full control of these private assets at today's artificially low prices, knowing full well they are buying an asset that will be worth three to six times as much in a very short time. There's no market risk to them achieving a higher market valuation. All they have to do is flip the switch and start charging their loyal users a small fee. I would take on that kind of risk any day.

In the case of the Yahoo!-Overture Japan deal, shareholders found out about it after the fact. It was barely mentioned in an analyst call and buried in the back of a Securities and Exchange Commission filing. Yahoo! shareholders didn't have the good fortune of a large shareholder like Capital Research calling on the company to explain itself as they did earlier this month when Capital Research brought to light the significant underreporting of shareholder discontent with the current Yahoo! board. Therefore, all Yahoo! shareholders need to pay close attention now to how Yahoo! unlocks value with its Asian assets.

Softbank got a great deal for Overture Japan. Alibaba shouldn't get a great deal for Taobao.com and AliPay.com. Yahoo! shareholders deserve to be treated fairly.

At the time of publication, Jackson was long YHOO.

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

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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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Yahoo!: Do The Right Thing for Your Shareholders with Taobao and AliPay

It's been a difficult 7 months for Yahoo! shareholders. Last week's shareholder meeting did little to quell concerns about the company's prospects moving forward.

Yahoo!'s board and management team essentially argued to shareholders in their presentation: trust us; we have a plan and we will execute against it.

I attended the meeting and asked about several governance-related incidents which have happened in the last year and have not been -- in my opinion -- in the interests of Yahoo! shareholders. The whole Vote-Gate announced earlier this week has been even more disconcerting.

It's sad to say, but I don't believe Yahoo!'s board or management team have done enough to deserve our respect and trust. Therefore, we need to continue to be vigilant and speak out for our own good.

I want to make Yahoo! shareholders aware of a potential scandal which has yet to occur. Hopefully, with enough pressure ahead of time, we can ensure it does not become a scandal. It relates to Yahoo!'s Asian assets, which have been much discussed in the last few months as a way of unlocking value for beleaguered Yahoo! shareholders.

As CFO Blake Jorgensen articulated during last week's shareholder meeting, Yahoo!'s collection of Asian assets (from its stake in Yahoo! Japan, to Alibaba in China, and Gmarket in Korea) are worth about $7 / share to Yahoo! shareholders at today's market prices. However, as Blake noted, Yahoo! maintains significant ownership (through its Alibaba stake) in two private Chinese companies: Taobao.com (China's eBay) and AliPay.com (China's PayPal).

Both have huge potential. They already are the leaders in their verticals in China. eBay just retreated from the Chinese market because of their inability to compete. They have also deliberately chosen to grab market-share in the past few years by not charging users fees. As you can imagine, these economics have helped their user-base explode. Neither company has minded doing this, because their costs are very low and they both know that they can turn the meter on at any time with a very large payback.

So, here's the governance issue: how should these assets be valued if Yahoo! wants to extract value from their stake in these private companies? If you valued them today, there are no revenues and negative earnings. If you valued them in a year or two when they each turn their meters on and generate hundreds of millions of dollars, you would have a much more valuable company.

There are two ways Yahoo! might extract value from Taobao.com and AliPay.com:

(1) agree to a Management Buy-out with each company's management or with Alibaba or;

(2) spin-off these assets to Yahoo!'s shareholders.

The latter option is the right thing to do for Yahoo! shareholders. Even if these shares are valued low today relative to what they will be in a few years after they start charging fees, Yahoo! shareholders can decide whether to hang on to them or not.

The Management Buy-out approach could be exploited. Alibaba or the management teams could decide to buy back Yahoo!'s stake at today's artificially low prices -- knowing full well they are buying an asset that will be worth 3 - 6 times as much in a very short time. Who wouldn't want that type of sweet-heart deal?

I do not know what Yahoo! is contemplating with these assets, but I believe sunlight is the best disinfectant. Better to bring this issue to light now and remind them to not even go there, then scream bloody murder after the fact when it's a done deal.

I wouldn't be as skeptical that such a sweet-heart deal might occur if I hadn't witnessed Yahoo! selling its $395 million / year Overture Japan business to Yahoo! Japan (Softbank) for $13 million last August. I asked Jerry about this deal last Friday. He said that Investor Relations had answered my question last year when I first raised it. (They didn't; they merely repeated Blake Jorgensen's public comments during two analyst calls which were vague and provided no clear rationale.) Jerry also suggested to me in his comments that there were "tax reasons" for doing such a deal, without further explaining. (Jerry: If there were such reasons, can you elaborate for the benefit of shareholders?)

Softbank got a great deal for Overture Japan. Alibaba shouldn't get a great deal for Taobao.com and AliPay.com. Yahoo! shareholders deserve to be treated fairly.

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National Post: Aurelian draws online storm

Investors vent on Kinross merger

Peter Koven, Financial Post

Published: Thursday, August 07, 2008

For the past couple of years, Aurelian Resources Inc. was the darling of retail investors.

But some of those same people are mobilizing online against the company's proposed $1.2-billion merger with Kinross Gold Corp., an effort that shows how the Internet has brought retail investors together and given them common cause as shareholders.

A message board on the Agoracom Web site has become the venting ground for furious Aurelian shareholders who are watching Kinross buy out their company at a considerably lower price than it was trading at earlier this year.

They have sent an angry letter to analysts and media decrying the deal, and both Aurelian and Kinross themselves have taken notice of the opposition.

The retail crowd cites a number of alleged problems with the Kinross arrangement, but the main argument involves the investment climate in Ecuador.

Aurelian shares were flying high until April, when the government put a temporary halt on its mining sector with the infamous "Mining Mandate." The stock almost immediately lost more than half its value.

Conditions in Ecuador have improved, and the investors argue Kinross is taking advantage of lingering political uncertainty to steal Aurelian and its world-class Fruta del Norte gold deposit at a bargain-basement price before Ecuador establishes its Mining Law. The fact that Kinross shares have dropped nearly 15% since the deal was announced (thus lowering the value of the share offer for Aurelian) supports that belief.

Patrick Anderson, Aurelian chief executive, said in an interview it is not so easy to dismiss the political risk that has weighed down his stock.

"I think a lot of people are thinking of our share price in terms of what it was six months ago or even a year ago. Or even before the election of the current administration in Ecuador, when we didn't have such a significant political risk discount," he said. He called the retail investor letter a "pretty skewed document."

Despite the protests of the retail community, the bid for Aurelian appears poised to succeed. The shares are trading below the Kinross offer price, and institutional investors have expressed support for the deal. (Retail investors are thought to own around 30% of the stock.)

As well, some analysts have not been nearly as bullish on Ecuador's prospects as the retail investors, and contend Kinross is paying a full price. And if the offer is as low as retail investors claim, a rival company could top it.

But the Aurelian backlash speaks to a more important issue: The Internet message boards are bringing the retail crowd together and giving them a louder voice.

"In the past, retail shareholders had no way to get together without it being extremely costly and onerous," said George Tsiolis, Agoracom president.

"But now you've got this viral thing where people are creating their own groups and figuring out a way to analyze if it's a good deal for the company, and figuring out how to vote. That's the way the stock market should work."

As evidence, he points to Eric Jackson, a private investor who used blog posts and YouTube videos to wage successful proxy fights against U. S. giants Yahoo! Inc. and Motorola Inc.

Canada experienced its first big piece of online shareholder activism this year when an Alberta investor used a Facebook page to rally fellow investors stuck with asset-backed commercial paper. They generated a powerful lobby and became major players in the talks to restructure the frozen market.

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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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TheStreet.com: The Activist Investor: Yahoo! Vote Doesn't Add Up

From TheStreet.com

By Eric Jackson

8/6/08

Yahoo!'s (YHOO - Cramer's Take - Stockpickr) shareholder vote last Friday had two scandals attached to it. The first you've likely heard about as it involved Yahoo! dramatically under-reporting (by more than 50% in some cases) how many of its shareholders voted "against" the re-election of several directors, including CEO Jerry Yang and Chairman Roy Bostock. However, you likely haven't heard of the second, which involves about 200 million shares (or 15% of the eligible shares) that appear to have never been counted in the latest voting results.

Yahoo! has been mired in controversy for nearly two years now, first with the release of the "Peanut Butter Memo" that aired a lot of internal dirty laundry, then Terry Semel's departure, and more recently the Microsoft (MSFT - Cramer's Take - Stockpickr) and Carl Icahn chapters. Many expected last Friday's shareholder meeting in San Jose to be a raucous affair. There were some pointed questions (including a few asked by me) but not the "fireworks" many in the press expected. With that in mind, coupled with the rather favorable voting results released after the meeting, many commentators gave Yahoo! a thumbs-up for having seemingly stared down its critics.

The press release Yahoo! issued last Friday following its annual meeting suggested that shareholders had more strongly supported Yahoo!'s board compared to 2007. Yet, as I dug into the results over the weekend, it became clear to me that 200 million Yahoo! shares (on average) were not counted in this year's election compared to the 2007 and 2006 votes.

2008 Results

As per Friday's press release from Yahoo!, only 1,046,095,584 out of 1,381,008,701 possible shareholder votes (or 75.8%) were counted in this year's election. As you go through the release, you quickly notice that each of the total votes cast for each director and proposal sum to exactly 1,046,095,584 (or just over a billion) votes.

So, for example, Roy Bostock received 632,023,657 "for" votes and 414,071,927 "withhold" or "against" votes for a total of 1,046,095,584. This means, according to the press release, he received 60.4% of votes "for" his re-election and 39.6% of votes "against" his re-election.

2007 Results

According to Yahoo!'s second-quarter 2007 10-Q, which was filed in August 2007, Roy Bostock received 828,803,221 shares voting "for" and 376,632,150 shares voting "against" out of a total 1,205,435,371. That means he received 68.8% of votes "for" his re-election and 31.2% of votes "against" his re-election.

However, it's notable that 159,339,787 fewer votes were cast this year compared to last year's vote on Roy Bostock.

It seems odd that fewer (13.2% fewer) shares would be voted this year compared to last, when there's been such additional scrutiny on the company in the wake of management's dealings with Microsoft and Carl Icahn. With the additional press, you would expect there would be more shares voted this year compared to last.

If you assume those 160 million shares were voted for Icahn and would have been voted against Bostock's re-election, he would have received 632,023,657 "for" votes and 573,411,714 "withhold" or "against" votes for a total of 1,205,435,371. This means that, this year, he would have received 52.4% of votes "for" his re-election and 47.6% of votes "against" his re-election -- just barely avoiding a vote of non-confidence.

2006 Results

If you go back to the second-quarter 10-Q from August 2006, you see that Roy Bostock received 1,261,316,357 shares voting "for" and 14,859,244 shares voting "withheld" out of a total 1,276,175,601 shares. That means, in that year, he received 98.8% of votes "for" his re-election and 1.2% of votes "against" his re-election.

But, again, there were 230,080,017 fewer votes (18% fewer) cast this year compared to this 2006 vote on Roy Bostock.

If you assume these missing shares would have been voted against Bostock's re-election, he would have received 632,023,657 "for" votes and 644,151,944 "withhold" or "against" votes for a total of 1,276,175,601 (and keep in mind that Friday's press release from Yahoo! said there were 1,381,008,701 shares outstanding as of the record date, June 3, 2008). This means that, this year, Bostock would have received 49.5% of votes "for" his re-election and 50.5% of votes "against" his re-election -- a flat rejection.

You could also make the argument that every possible vote that was going to be cast "for" Bostock's election was counted in Yahoo!'s number of 632,023,657 for this year. That means there were 748,985,044 shares (or 54.2%) out of the total 1,381,008,701 which did not vote "for" his re-election.

The other Yahoo! directors are missing similar numbers of votes compared to 2007 and 2006.
What this means is that we appear to have roughly 200 million Yahoo! shares (averaged between 2007 and 2006) that were not counted in the 2008 results Yahoo! reported last Friday afternoon and then with the new results yesterday.

Where are these missing shares? Were they intended to be counted against the re-election of Yahoo!'s board and not?

Yahoo! needs to account for such a large discrepancy between this year's numbers and the past two years'. It's quite possible that Yahoo! shareholders did vote in record numbers against the Yahoo! board at this year's election but these results are not being shared openly.

Yesterday, I started to receive emails from fellow Yahoo! shareholders complaining of voting irregularities. One shareholder told Kara Swisher:

"I hold 23,000 shares of YHOO. I had 17,000 on the date of record. I voted to 'withhold all' ... I think twice. Then I voted for all of Carl's team. Now I have learned that the Carl votes did not count and a day AFTER the annual meeting I received my new ballot. I wonder how many other people were disenfranchised??? Who can I complain to?? Is this how Jerry got his support??"

I call on Yahoo! to immediately appoint a third party to review and then report back to shareholders exactly how all of the 1.4 billion shares outstanding on the June 3 record date were voted during this election.

If the results truly indicate that this board was re-elected, shareholders can and will accept that. But Yahoo! shareholders expect and deserve to know exactly how their shares were voted with accurate numbers.

One thing is clear at this point: Roy Bostock and Ron Burkle do not have the confidence of the Yahoo! shareholders. They should both immediately resign from the board so that Yahoo! can fill those positions. Doing it at the same time as bringing on the new Icahn nominees to the board before that Aug. 15 deadline would make a lot of sense.

Hopefully, the new Yahoo! board can turn the page on these difficult last four years and navigate through more prosperous times ahead.

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Dow Jones: Weak Support For Yahoo Board Seen As Ammunition For Icahn

August 05, 2008: 09:01 PM EST

SAN FRANCISCO -(Dow Jones)- A recount showing shareholder support for Yahoo Inc.'s (YHOO) top officials was significantly less than first reported could provide ammunition for investor Carl Icahn to push for change when he joins the Internet company's board of directors later this month.

Yahoo on Tuesday acknowledged that errors by an independent intermediary in tabulating board-election votes last week resulted in an understatement of the number of votes withheld, an error that dramatically overestimated the degree of shareholder support for Chief Executive Jerry Yang and Chairman Roy Bostock.

Yahoo said that only 66% of votes were cast in support of Yang, down from the 85% it had previously announced. Bostock received a 60% favorable vote, down from 80%, while Yahoo director Ron Burkle saw his share of supportive votes fall from 81% of votes cast to 62%.

Yahoo did not respond to request for further comment.

The errors didn't change the results of the election, but the scale of the votes withheld is a significant blow for the board, which has been under fire ever since it rejected Microsoft Corp.'s (MSFT) $47.5 billion takeover bid in early May. The company is now under increasing pressure to show investors that it has a plan to grow its online advertising business and boost its slumping stock price.

"It provides ammunition for Microsoft and I think Carl Icahn will use this to his advantage," said Eric Jackson, president of Ironfire Capital, an investment firm that represents investors holding 3.2 million Yahoo shares. "I think he would be smart to push for Bostock's ouster."

Jackson, who criticized Yang and Bostock at the company's annual meeting on Friday, noted that Bostock received a smaller percentage of votes than then-CEO Terry Semel did last year. Semel resigned as Yahoo CEO six days later and eventually stepped down from the company's board in January.

Financial analysts, such as CanaccordAdams' Colin Gillis, also said the new results might give Icahn more clout in key decisions.

"The protest vote was pretty strong," agreed Clayton Moran, analyst at Stanford Group. "It sends clear message that shareholders are unhappy with current course."

Moran said the result suggested the company has two or three quarters to show meaningful progress.

Icahn launched a proxy fight to unseat the board, fire Yang and sell the company to Microsoft, but the billionaire investor and Yahoo struck a deal that granted him and two allies seats on an expanded board. They will be appointed sometime before Aug. 15.

Corporate elections in which candidates run unopposed typically produce extremely lopsided victories for incumbents. It is rare for corporate directors to see withheld vote totals beyond the single digits. Walt Disney Co. (DIS) Chairman and Chief Executive Michael Eisner was pressured to resign after about 45% of voters withheld support during a board election in 2004.

Capital Research Global Investors, which owns about 6% of Yahoo shares, demanded a recount Monday after it became convinced that its opposition to Yahoo's board wasn't accurately reflected in the results released last week.

A Capital Research spokesman declined to comment following the release of the new results.

Broadridge Financial Solutions, the firm responsible for processing shareholder votes, said Tuesday that it had made a mistake that caused it to understate the number of shares that Capital Research intended to cast against some of Yahoo's directors.

Capital Research fund manager Gordon Crawford sharply criticized co-founder Yang and Bostock in May for failing to secure a deal with Microsoft. Microsoft had sweetened its offer in May to $33 per share, but then withdrew it after Yang said he wouldn't sell Yahoo for less than $37 per share.

Yahoo shares have plummeted more than 30% since Microsoft walked away, cutting the Internet company's market value by about $20 billion.

On Tuesday, Yahoo's stock rose 44 cents to $19.82.

-By Scott Morrison; Dow Jones Newswires; 415-765-6118; scott.morrison@ dowjones.com

-By Jay Miller, Dow Jones Newswires; 201-938-2331; jay.miller@dowjones.com

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Associated Press: Revised Yahoo vote reveals more disdain for board

By MICHAEL LIEDTKE – 1 hour ago

SAN FRANCISCO (AP) — Yahoo Inc. has revised the results of a closely watched shareholder vote on its much-maligned board after discovering an error by a tabulation firm grossly exaggerated the number of ballots backing the directors.

The changes made Tuesday revealed that 200 million votes opposing the re-election of Yahoo Chief Executive Jerry Yang, Yahoo Chairman Roy Bostock and another director, Ron Burkle, were improperly registered as supportive at the company's annual meeting last week. The miscalculations also caused 100 million votes to be miscast in support of two other directors, Arthur Kern and Gary Wilson.

No mistakes were detected in the votes for Yahoo's four other incumbent directors — Eric Hippeau, Vyomesh Josh, Mary Agnes Wilderotter and Robert Kotick, who is about to give up his seat to make room for dissident investor Carl Icahn.

The recount didn't alter the outcome of last week's election, which retained Yahoo's directors despite shareholder anger about the board's handling of a now-withdrawn $47.5 billion takeover bid from Microsoft Corp.

But the change adds more punch to the protest against the Yahoo board.

"It's important for Yahoo's board to understand there is still pressure on them," said Eric Jackson, a hedge fund manager who represents a group of stockholders with about 3.2 million Yahoo shares. "I thought Yahoo's board was kind of let off the hook last week when they didn't really deserve to be."

Nearly 40 percent of Yahoo shareholders voted against Bostock under the revised results, an unusually harsh rebuke of a board chairman. The original results listed 20 percent of Yahoo's shareholders opposing Bostock.

Yahoo named Bostock chairman in January even though more than 30 percent of Yahoo shareholders wanted him off the board in a vote held last year.

Nearly 34 percent of Yahoo shareholders expressed their displeasure with Yang, according to the recount, up from 15 percent in the original results.

The dissent indicates more shareholders are likely to call upon Yahoo's board to replace Yang as CEO unless he can prove the Internet company he co-founded is worth more than Microsoft offered to pay three months ago. Yahoo's market value is nearly $20 billion below Microsoft's last offer, which translated into $33 per share.

Yahoo shares gained 44 cents to $19.82 Tuesday.

Icahn already has made it clear that he believes Yahoo needs a more experienced CEO than the 39-year-old Yang.

Burkle, who became a billionaire running supermarkets, proved to be nearly as unpopular as Bostock. He was opposed by nearly 38 percent of Yahoo's voting shareholders, up from 19 percent in last week's tabulation. Kern was opposed by nearly 32 percent, up from 22 percent under last week's tally.

Burkle, Kern and Bostock sit on a compensation committee that approved a wide-ranging employee severance plan in February shortly after Microsoft made its unsolicited takeover bid. The costs of the severance plan could hurt shareholders by making Yahoo less valuable to Microsoft or the potential acquirers.

The miscounted votes might not have been detected if not for an inquiry lodged Monday by Capital Research Global Investors, which owns a 6.2 percent stake in Yahoo.

Convinced that its opposition to Yahoo's board wasn't reflected in last week's vote, Capital Research demanded an audit from Broadridge Financial Solutions, the processing firm responsible for casting the ballots for a wide range of institutional investors.

Broadridge acknowledged Tuesday that a printing mix-up caused it to understate the number of shares that intended to vote against Yahoo directors. The firm didn't elaborate on how many shareholders besides Capital Research were affected.

Broadridge processes votes in about 14,000 annual meetings each year, but hasn't found any similar mistakes in a review covering the past 18 months, said Chuck Callan, the Lake Success, N.Y.-based company's senior vice president of regulatory affairs. "This was a unique, isolated incident," he said.

Capital Research spokesman Chuck Freadhoff declined comment Tuesday.

Capital Research's fund manager, Gordon Crawford, has ridiculed Yang and Bostock for their tactics in the Microsoft talks. Microsoft withdrew its takeover offer, valued at $33 per share, three months ago after Yang demanded $37 per share with Bostock's backing.

Yahoo's board is about to be expanded to 11 people to include Icahn and two of his allies. Icahn still hopes to revive talks with Microsoft.

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Washington Post: Major Yahoo Shareholder Concerned Over Voting Irregularities

Joseph Weisenthal
paidContent.org
Tuesday, August 5, 2008; 1:07 AM

A very bizarre twist in the ongoing Yahoo ( NSDQ: YHOO) saga, sure to to set off the tinfoil hat crowd? Major shareholder Capital Research Global is concerned about possible voting irregularities following last Friday's shareholder vote count. Kara Swisher first reported the news this afternoon that sources close to Capital Research thought there was something funny about the stated results. Now Reuters is reporting the same. The gist: Assuming that Capital Research voted most of its 15 percent stake against Yang and Roy Boystock, then virtually every single other share would've had to be voted in their favor. Yang, for example, was elected with over 85 percent of the votes cast. Bostock got a bit less than 80 percent. In a year where a lot of shareholders are clearly frustrated with management, this level of support would be pretty surprising. More broadly, it's surprising that Yang and Bostock both got more support than they did last year.

Kara also notes another voting anomaly, which is that lest votes were cast this year than last. Given the hubbub leading up to the vote that's a bit of a surprise, though as she notes it could be because in an uncontested election, shares aren't automatically cast.

However this turns out?and the issue is not with Yahoo itself, but with the outside vote tabulators?it's unlikely to have a major effect on the actual outcome. But while 85 percent looks like a clear mandate, 70 percent support (or potentially 65 percent in the case of Bostock) starts to look a lot more like a no confidence vote.

Update: Activist investor Eric Jackson?who actually bothered showing up at the meeting to voice his displeasure with the board?wrote about the seemingly funny math on his blog last night. He walks through the numbers from this year, 2007 and 2006 to show why things look weird. However this turns out, it looks like the Tech Journalists Full Employment Act Of 2008 is getting some kind of extension.

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Reuters: Big holder Capital Research wants Yahoo vote probe

Anupreeta Das and Eric Auchard , Reuters
Published: Monday, August 04, 2008

SAN FRANCISCO (Reuters) - One of Yahoo Inc's largest and most critical shareholders, Capital Research Global Investors, said on Monday it asked for a probe of last week's shareholder vote, a move that calls into question the strong showing for Chief Executive Jerry Yang.

Yang has been under pressure for months over failed negotiations to sell the company to Microsoft Corp and regarding questions about his leadership, but Friday's shareholder vote suggested the tide was turning in his favor.

News of questions over the vote was first reported by the D: All Things Digital blog. AllThingsD cited unnamed sources saying two major Capital Research and Management funds holding about 16 percent of Yahoo shares had recommended withholding their votes in favor of Yang in protest over his performance.

Capital Research Global Investors, the fund group led by portfolio manager Gordon Crawford, was more strongly opposed to Yang than its sister fund, Capital World Investors, which was less critical, according to sources quoted by AllThingsD.

Yang received 85.4 percent support in the results announced on Friday, with the remaining votes withheld in protest.

"I guess Jerry Yang didn't come out of the meeting as unscathed as it seemed," Canaccord Adams analyst Colin Gillis said of the uncertainty raised by calls for a recount.

Investors holding nearly 76 percent of Yahoo's 1.38 billion shares gave solid support for all nine board directors, with the lowest level of support for long-time member Arthur Kern, who drew 77.9 percent.

Sanford C. Bernstein analyst Jeffrey Lindsay said informal polling his firm had done among major investors showed widespread dissatisfaction with Yahoo's handling of talks with Microsoft, which the broker expected to translate into a more substantial number of withheld votes for directors.

"We were surprised at the very high vote counts that were pro Jerry Yang," Lindsay said. "Certainly the final results seemed very different from the exit polls."

Eric Jackson, a small shareholder and vocal critic of Yahoo management, said in a blog post-dated Monday that there appeared to be a major discrepancy in the total number of votes cast in the 2008 election compared with 2007 or 2006.

For example, around 167 million fewer votes were cast this year in voting on whether to re-elect Yang than were cast last year.

"It seems odd that fewer shares would be voted this year compared to last, when there's been such additional scrutiny on the company in the wake of the dealings with Microsoft and Carl Icahn," wrote Jackson, who runs the investment firm Ironfire Capital and owns 250 Yahoo shares, but who leads a grassroots group of dissident shareholders that collectively own 3.2 million shares of the company.

Yahoo said in a statement it was not party to any errors that may have been made in the voting process.

"The independent inspector of elections certified the results of the election and Yahoo accurately announced those results," the company said in an e-mailed statement.

But Yahoo left open the possibility that some intermediary may have made a mistake.

"Yahoo did not participate in the execution of the votes and was not a party to any errors which may have been made either by a voting institution or a proxy processing intermediary acting on behalf of banks, brokers and institutions," it said.

Crawford, whose Capital Research Global Investors owned 6.2 percent of Yahoo as of early June, said in May he was "extremely angry" at Yang over the breakdown of talks with Microsoft. Capital World Investors held 9.8 percent of Yahoo shares, according to recent regulatory filings.

A Capital Group spokesman said the Crawford-run fund had inquired with Broadridge Financial Solutions Inc, a financial services intermediary that handles proxy processing services for it.

"Capital Research Global Investors asked Broadridge Financial to double-check the votes it transmitted to Yahoo on its behalf," said Chuck Freadhoff, a spokesman for the Capital Group and its affiliates. The spokesman declined to comment on how Capital-affiliated funds had cast their votes.

Broadridge declined to comment.

Gillis at Canaccord Adams said a somewhat lower vote was unlikely to materially weaken Yang's position, which looks secure unless Yahoo's third-quarter results fall short amid a worsening economy or if the stock remains stuck around $20 in the months to come.

"I think Jerry (Yang) is still firmly in place until some deviation happens from the plan Yahoo has set forth," he said.

(Additional reporting by Muralikumar Anantharaman in Boston; Editing by Toni Reinhold, Braden Reddall & Ian Geoghegan)

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