Jan. 14 (Bloomberg) -- Yahoo! Inc. Chief Executive Officer Carol Bartz, who took the job yesterday, won’t get much of a honeymoon with the Internet company’s investors.

Shareholders are looking for Yahoo to rekindle talks with Microsoft Corp. or possibly sell off assets -- anything that earns them a quick return. Microsoft CEO Steve Ballmer said as recently as last week that he’s still open to a partnership with Yahoo, something that may be first on investors’ agenda.

Yahoo, whose profit has fallen in 10 of the past 11 quarters, spurned a takeover offer last year from Microsoft for as much as $47.5 billion. Then-CEO Jerry Yang agreed to step down in November after proposals to team up with Google Inc. or sell off Yahoo’s search engine alone also fell through. Hedge- fund investors and other shareholders, who snapped up the shares during takeover talks, are eager for some kind of new deal.

“There’s high expectations and low patience,” said Ralph Whitworth, founder of San Diego-based Relational Investors LLC. An activist investor, he bought 9.2 million shares of Yahoo in the third quarter of last year. “I would say within the next 90 days, there should be clear direction.”

Bartz, 60, also has to stem an exodus of talent. Yahoo has lost top engineers and managers in recent months, with Microsoft hiring Yahoo executive Qi Lu as the president of its online services unit. Yahoo also voluntarily trimmed 10 percent of its workforce in a bid to cut costs.

Decker’s Departure

President Susan Decker, who had been considered for the CEO job, is leaving, Yahoo said yesterday. Yang, who co-founded the company in 1994, will return to the job of “Chief Yahoo,” an advisory role. He stepped into the CEO spot in 2007, replacing Terry Semel.

“They have to reinvent themselves,” said Bill Coleman, founder of BEA Systems Inc., which had Bartz on its board. “You can only do so many layoffs. The challenge is going to be working with the team to make them a leader again in some part of this industry.”

In Internet searches, Bartz must challenge the dominance of Google, which commands more than 60 percent of the U.S. market. At the same time, a recession is hurting online advertising, Yahoo’s main source of revenue.

Yahoo, based in Sunnyvale, California, rose 23 cents, or 1.9 percent, to $12.33 in Nasdaq Stock Market trading at 3:35 p.m. New York time. The stock fell 48 percent last year.

Big Investors

Hedge funds rushed into Yahoo in the first quarter of 2008, when Microsoft made an initial bid of $31 a share, said Ben Silverman, director of research at InsiderScore.com, a trading research site. The offer climbed as high as $33 in May, before talks broke down over price.

The percentage of shares owned by hedge funds -- along with some other institutional investors -- rose to 20 percent in the first quarter of last year, from less than 12 percent in the previous quarter, Silverman said.

That percentage then fell to 16 percent by the third quarter, he said. While hedge funds were getting out of stocks altogether at that time, some sold because of the failed Microsoft deal, Silverman said.

Shareholders that stuck with Yahoo are now expecting a payback, said Sachin Shah, an analyst with ICAP in Jersey City, New Jersey.

“She doesn’t have a lot of wiggle room,” he said. “The shareholders know where the stock has been. They’ve seen the lows. Now they want to see the highs.”

Open to Talks?

Ballmer told the Financial Times last week that he was still open to a partnership of some kind with Yahoo. He remains against a full acquisition of the Silicon Valley company.

In June, Microsoft offered to buy $8 billion in Yahoo shares for $35 each and the search business for an additional $1 billion. Yahoo’s board turned down the deal, saying it undervalued the search unit.

Yang opted instead to broker a search-advertising agreement with Google. Google walked away from that partnership last year after regulators threatened to block the deal.

John Chambers, CEO of Cisco Systems Inc., said Bartz has shown she can deliver results and that Yahoo has the potential to do a turnaround. She sits on Cisco’s board.

Under Bartz, Autodesk survived the slump of the early 1990s and the dot-com crash, as well as a fight with Microsoft for market share. She added software for three-dimensional designs, helping spur orders. The company also boosted its international revenue, getting more than 60 percent of sales overseas.

“She doesn’t vacillate under pressure,” Chambers said. “I’ve learned never to bet against Carol Bartz. I would not mess with her.”

‘Breathing Room’

Bartz struck a confident tone during her first conference call, minutes after Yahoo announced her hiring.

“It’s no secret that Yahoo has faced challenges over the past year, but as I look around here today, I see a powerful global brand,” she said. “Let’s give this company some friggin’ breathing room.”

Marc Benioff, CEO of Salesforce.com Inc., said Bartz will need some time to learn more about the industry.

“She’s the most tenured and sophisticated female executive in the Valley,” Benioff said. “She’s in a new world with the Internet. She’ll have to build a team and develop a strategy.”

At the same time, investors expect action soon, Benjamin Schachter, an analyst with UBS AG in New York, said yesterday in a note. Agreeing to a search partnership with Microsoft should be one of the first decisions Bartz makes, he said.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

Last Updated: January 14, 2009 15:37 EST