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Bartz Fired as Yahoo CEO Amid Plans for Strategic Review

(Bloomberg) — Yahoo! Inc. ousted Chief Executive Officer Carol Bartz and announced a strategic review to help the most-visited U.S. Web portal revive growth and lure users who have defected to rivals in Web search and social networking.

Chief Financial Officer Tim Morse will take over as interim CEO, Sunnyvale, California-based Yahoo said in a statement today. The company said it will hire a search firm to help it find a permanent CEO.

Under Bartz, 63, who took over as CEO in January 2009, Yahoo has frustrated investors and failed to keep Google Inc. and Facebook Inc. from siphoning off Internet users and advertising revenue. The management change and strategy overhaul show the board is listening to shareholders, said Ken Sena, analyst at New York-based Evercore Partners.

“It shows some accountability for the dissatisfaction that investors have felt over the last few years,” Sena said. “The turnaround efforts have not worked and trends seem to be getting worse. I see this as a positive step.”

Since Bartz took the reins from co-founder Jerry Yang, Yahoo’s stock has gained 6.7 percent, compared with a 34 percent increase for the Standard & Poor’s 500 index. The shares rose 4 cents to $12.91 today on the Nasdaq Stock Market before the announcement. They have dropped 22 percent this year.

“I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s chairman of the board,” Bartz said in a memo sent to staff and obtained by Bloomberg News. “It has been my pleasure to work with all of you and I wish you only the best going forward.”

Microsoft Partnership

As CEO, Bartz slashed costs with job cuts and a search partnership with Microsoft Corp. Still, Yahoo failed to make much headway in the U.S. advertising and search markets.

Once an $80 billion company, Yahoo’s share of the U.S. online ad market is estimated to drop to 9.7 percent next year from 16 percent in 2009, according to New York-based research firm EMarketer Inc. Google’s may increase to 45 percent, while Facebook may more than triple its portion of the online ad market to 7.8 percent, EMarketer predicts.

Yahoo reported second-quarter revenue in July that fell short of estimates as Bartz’s overhaul of the U.S. sales force made it harder to close deals and slowed growth in display advertising.

Display Slowdown

“Some of the issues have been company-specific problems that have been under her watch,” said Ross Sandler, an analyst at RBC Capital Markets in New York. “The slowdown in their display business is simply from her inability to keep the display team together over the last 18 months,” said Sandler, who rates Yahoo “outperform” and doesn’t own the stock.

Bartz’s termination is considered “without cause,” and the company plans to fulfill the severance terms of her contract, according to a person familiar with the board, who asked not to be identified because the agreement was confidential. Yahoo isn’t paying Bartz any additional compensation after ending her contract early, the person said.

Yahoo hasn’t hired bankers or other outside advisers to explore a potential sale of its assets, according to the person close to its board.

MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.
King is a reporter for Bloomberg News in San Francisco.
Levy is a reporter for Bloomberg News in San Francisco.

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