Yahoo! Inc. (YHOO) said Chief Executive Officer Scott Thompson stepped down after failing to correct errors in his credentials and the company revamped its board, handing a victory to activist investor Daniel Loeb, who pushed for the overhaul and said the Web portal is mismanaged.
Ross Levinsohn, Yahoo’s head of global media, was named interim CEO, and director Fred Amoroso will become chairman, the Sunnyvale, California-based company said in a statement yesterday. Amoroso replaces Roy Bostock, the non-executive chairman, who is exiting the board immediately. Yahoo agreed to add Loeb to its board along with two other directors nominated by his fund, Third Point LLC, to end a proxy fight.
Third Point, which owns about 5.8 percent of Yahoo, stepped up pressure on Yahoo since flagging discrepancies in Thompson’s resume on May 3. The departure of Yahoo’s third CEO in just over three years adds to upheaval at a company that was once a leader in Web search and information. Yahoo’s sales tumbled 31 percent last year from a peak three years earlier, and its market value has dropped by more than half since the end of 2005.
“The company is starting from scratch yet again,” Ben Schachter, an analyst at Macquarie Capital, said in an interview. He has a neutral rating on the stock and doesn’t own it. “Scott put them in a very difficult position and something had to happen.”
Thompson, 54, was brought on in January to orchestrate a turnaround at the struggling Web portal after Google Inc. and Facebook Inc. lured users and advertising dollars.
“This is a damaged company and a company competing in a space that’s moving incredibly fast,” Schachter said.
Thompson’s undoing stems from erroneous biographical references that said he held a bachelor’s degree in computer science from Stonehill College. A former EBay Inc. (EBAY) executive, he earned a degree in accounting from the Easton, Massachusetts-based school, and the information is correctly listed in EBay regulatory filings and some Yahoo press releases. The incorrect degree showed up in Yahoo’s April 27 10-K filing, as well as on the company’s website.
Before resigning as CEO, Thompson told directors he has been diagnosed with thyroid cancer, according to a person briefed on the matter. The cancer disclosure was previously reported by the Wall Street Journal.
About 56,000 people will be diagnosed with thyroid cancer this year and 1,780 will die, according to the National Cancer Institute. Treatments can include chemotherapy, radiation and surgery to remove the thyroid. Doctors can sometimes remove the organ using radioactive medicine, which destroys the thyroid without harming surrounding tissue.
Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.
In addition toLoeb, Third Point nominees Harry Wilson and Michael Wolf will join Yahoo as directors. A fourth nominee, Jeffrey Zucker, said in yesterday’s statement that he withdrew his nomination to allow a quick transition.
“We’re particularly enthused by the addition of the new board slate,” Brian Wieser, an analyst at Pivotal Research Group, wrote in a research note. “Loeb, Wolf and Wilson appear to be focused upon restoring Yahoo’s importance for the industry, and from our observations, care very much about the opportunity.”
Bostock, Patti Hart, Gary Wilson, Arthur Kern and Vyomesh Joshi have resigned from the board, Yahoo said. Previously, the company said they wouldn’t stand for re-election at the annual shareholders meeting. Third Point also had suggested Hart’s academic credentials weren’t accurate, though a review by the board of International Game Technology (IGT), where she is CEO, found “no material inconsistencies,” IGT said last week.
Yahoo shares rose 2 percent to $15.50 at the close in New York. The stock has declined 3.9 percent this year.
Thompson, the former president of EBay’s PayPal unit, was hired in January to replace Carol Bartz, who had been dismissed by Yahoo’s board in September amid falling sales and market-share losses. Chief Financial Officer Tim Morse was named interim CEO after Bartz’s departure.
Thompson cut 2,000 jobs and overhauled management, and Yahoo’s stock had its biggest rally in three months on April 18 after the company reported first-quarter sales that topped estimates, fueling optimism that turnaround efforts might take hold. A day earlier, Yahoo reported its first revenue gain in more than three years.
“The company is in a precarious position,” said Paul Sweeney, a senior analyst with Bloomberg Industries. “Probably the best thing and the easiest thing to do is to make this change.”
Levinsohn expressed optimism about the company’s future in a memo to employees yesterday that was obtained by Bloomberg News. The company is “achieving genuine and meaningful successes,” he said.
“Fred and the new Yahoo board are looking forward to working constructively to stabilize the leadership team and to further accelerate the progress we have made in reinvigorating Yahoo, executing against the company’s strategic initiatives and enhancing stockholder value,” he said. “Yahoo is a dynamic, global company in a dynamic, global industry, so change -- sometimes unexpected and sometimes at lightning speed -- is something we will continue to live with and something we should embrace.”
Third Point Negotiations
Third Point had been locked in a dispute with the company about its direction and appointments to the board, calling Yahoo one of technology’s “most mismanaged companies.”
The fund faulted Thompson in April for embarking on job cuts before he articulated a more complete strategy, and it criticized earlier management for failing to accept a $44 billion takeover bid from Microsoft Corp.
Yahoo named three independent directors in March as part of an effort to shake up the board and appease investors. The company negotiated with Third Point’s Loeb about adding one of his nominees and another that both sides could agree on, though the discussions broke down when Loeb insisted that he himself be added, Yahoo said at the time. The fund announced plans in March to seek shareholder votes for its slate of four directors.
After the disclosure of the resume error, Yahoo initially called the discrepancy an “inadvertent error” and said it “in no way alters that fact that Mr. Thompson is a highly qualified executive with a successful track record leading large consumer technology companies.”
Yahoo later formed a review committee led by Amoroso, who joined the board in February. The other directors named to the panel were John Hayes and Thomas McInerney, who both joined the board in April. The committee also retained independent counsel, Terry Bird of Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg in Los Angeles.
Thompson, in a memo to staff on May 7, apologized for the fallout from the disclosures and said he takes “full responsibility.”
“I want you to know how deeply I regret how this issue has affected the company and all of you,” Thompson said.
PayPal, owned by San Jose, California-based EBay, has services that help retailers and individuals exchange funds for purchases or payments, even without a credit card. As president, Thompson contributed to an increase of the payment service’s users from 50 million to more than 100 million, helping it near a goal of revenue as high as $7 billion by 2013, compared with about $3.3 billion in 2010.
Thompson’s potential compensation was set at as high as $27 million when he joined. Besides an annual base salary of $1 million, he received a hiring bonus of $1.5 million in cash and $5.5 million in stock, according to Yahoo’s agreement letter filed with the U.S. Securities and Exchange Commission.
The company said there would be no severance compensation as part of the separation agreement, according to a filing today. Thompson, who also stepped down as director, will keep the cash and stock awards that had vested, the filing said.
Thompson was set to receive a so-called inducement equity award in February worth $5 million, regulatory filings show. He was eligible for incentive compensation of as much as twice his annual salary, depending on performance, with the bonus guaranteed to be least $1 million for the fiscal year.
He also was slated to receive an additional $1 million stock award in March 2013 and to get long-term equity grants that were projected by the company to be worth $11 million for 2012, according to the regulatory filing.
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