Yahoo's New Headache: Activist Taking Steps Toward a Proxy Fight

  • Adviser has been calling shareholders, people familiar say
  • Fight would be another challenge to Mayer's turnaround plan

Starboard Value LP is taking initial steps toward a potential proxy fight with Yahoo! Inc., signaling the activist investor isn’t satisfied with the Web portal’s latest efforts to streamline and a pledge to consider selling assets, according to people familiar with the matter.

Okapi Partners LLC, a proxy-solicitation adviser typically used by Starboard, has been calling Yahoo shareholders, said the people, who asked not to be identified because the process isn’t public. Firms such as Okapi often make these calls ahead of a potential proxy battle, and Starboard could push for new board members as soon as this month. The investor owned less than 1 percent of Yahoo’s stock at the end of last year.

A proxy fight would be yet another challenge for Yahoo Chief Executive Officer Marissa Mayer, who is already under fire after stumbling in her efforts to fuel growth at the Web company and separate from its valuable stakes in Alibaba Group Holding Ltd. and Yahoo Japan Corp. Earlier this month, Mayer said the board will engage on strategic proposals and explore alternatives. Starboard, which has been a critic of the company since 2014, in January called for an overhaul of management, saying the company needs “significant changes.”

Sarah Meron, a spokeswoman for Sunnyvale, California-based Yahoo, declined to comment, as did Starboard. The activist in November publicly threatened a proxy fight for board seats.

“The market has a dim view of the company’s current strategy,” Starboard CEO Jeff Smith said at the time in a strongly worded letter to Yahoo’s board and management. “Selling the Core Business now is the best outcome for Yahoo shareholders,” the activist investor wrote, adding Starboard will “look to make significant changes to the board if you continue to make decisions that destroy shareholder value.”

Yahoo rose 0.7 percent to $29.58 at 9:35 a.m. Thursday in New York. Through yesterday the shares had declined 12 percent this year.

A successful proxy fight requires a shareholder to persuade other investors to vote in favor of proposed changes -- in Starboard’s case, often a slate of replacement directors. The window to submit proposals for Yahoo’s annual meeting or to nominate board members opens next week for about a month, according to a company filing.

Starboard’s Record

Starboard is one of the most prolific U.S. activist investors and has successfully forced companies to heed its wishes in the past. The firm in 2014 persuaded investors to replace Darden Restaurants Inc.’s entire 12-member board after the unpopular sale of its Red Lobster chain to Golden Gate Capital. Starboard also recently helped push office-supply rivals Staples Inc. and Office Depot Inc. into a merger.

The fight with Starboard isn’t Yahoo’s first run-in with disgruntled activists. In 2012, Third Point LLC’s Dan Loeb succeeded in getting himself and two nominees on the Yahoo board after tangling with former CEO Scott Thompson, who stepped down after failing to correct errors in his credentials. Later that year, Loeb was instrumental in getting Mayer to lead the company.

In 2008, Carl Icahn, a billionaire activist investor, joined Yahoo’s board after threatening a proxy fight when the company failed to sell itself to Microsoft Corp. and co-founder Jerry Yang stepped down as CEO. Icahn left the board in 2009.

On Feb. 2, Mayer unveiled the company’s latest turnaround plan, including a workforce cut of 15 percent, office closures and product shutdowns. She also signaled she’s willing to sell core assets, saying the company was open to well-qualified proposals. Verizon Communications Inc. has publicly said it would consider a deal, while private equity firms TPG and Bain Capital have also weighed bids, according to people with knowledge of the matter.

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