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Yahoo Shares Rise After Third Point Demands Board Changes

Carol Bartz, former chief executive officer of Yahoo! Inc., speaks at the Web 2.0 Summit in San Francisco. Photographer: Tony Avelar/Bloomberg
Carol Bartz, former chief executive officer of Yahoo! Inc., speaks at the Web 2.0 Summit in San Francisco. Photographer: Tony Avelar/Bloomberg

Sept. 8 (Bloomberg) -- Yahoo! Inc. shares jumped after Third Point LLC bought a 5.2 percent stake and urged the board to resign, saying directors erred in spurning a takeover bid and hired a chief executive officer who wasn’t up to the job.

The “board of directors has made a number of decisions that have directly harmed the company and resulted in a stock price far below the company’s intrinsic value,” Third Point, a New York investment firm, said today in a filing.

Yahoo Chairman Roy Bostock fired CEO Carol Bartz on Sept. 6, a move that left investors and analysts questioning the company’s strategy. Bartz was hired to help Yahoo revive the Web portal’s sales growth and boost its shares after the 2008 decision to reject a $47.5 billion offer from Microsoft Corp.

“Investors don’t trust in the board to make the right moves,” said Colin Gillis, an analyst at BGC Partners in New York. He has a “hold” rating on Yahoo and doesn’t own the stock. “Concern over the board’s dismal performance is an overhang on the name.”

The board “made a serious misjudgment in approving the hiring of Carol Bartz,” Third Point said in the filing. The company also committed a “gross error” by turning down the Microsoft takeover offer, the firm said.

“The Yahoo board recognizes the critical challenges facing the company and appreciates constructive input from all shareholders,” Charles Sipkins, a spokesman for Yahoo’s board, said in an e-mailed statement.

Elissa Doyle, a spokeswoman for Third Point, declined to elaborate on the filing.

Falling Behind

Bartz, who took over as CEO in January 2009, failed to keep Google Inc. and Facebook Inc. from attracting Internet users and advertising revenue. Bartz, 63, also rankled investors with her handling of assets in Asia, including a stake in Alibaba Group Holding Ltd. and Yahoo Japan Corp. She feuded publicly with Alibaba Group CEO Jack Ma, who spun off one of his company’s most valuable assets, the Alipay payment business, without compensating Yahoo shareholders until later.

Under Bartz, Yahoo’s stock gained 6.7 percent, compared with a 34 percent increase for the Standard & Poor’s 500 Index. Since Bartz was fired, the shares have climbed almost 12 percent. Today, Yahoo’s stock rose 83 cents to $14.44 on the Nasdaq Stock Market.

Excluding the value of Yahoo’s Asian assets and its cash holdings, Yahoo has an implied value of $2.78 a share, or 2.2 times next year’s earnings before interest, taxes, depreciation and amortization, Third Point said.

‘Effective and Focused’

“With more effective and focused management, one could realistically envision” Yahoo trading at seven times that figure, Third Point CEO Daniel Loeb wrote in the letter.

Yahoo’s board “welcomes a dialogue about the concerns that have been raised by the Third Point filing,” Sipkins said. “The board is committed to acting in the best interests of shareholders.”

In an interview with Fortune published today, Bartz said Yahoo’s board “f---ed me over” and that its directors were “spooked by being cast as the worst board in the country” after they were criticized for turning down a deal to sell the company to Microsoft. “Now they’re trying to show that they’re not the doofuses that they are,” she said.

To contact the reporter on this story: Douglas MacMillan in San Francisco at Dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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