Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Yahoo just keeps digging itself a deeper hole. 

The Internet world's dopey brother-in-law is already in the midst of an uninspiring turnaround plan that CEO Marissa Mayer said could take three or more years to pay off. It's working through a yearlong slog to shed its valuable but tax-burdened shares in Alibaba. Directors and enough high-priced help to fill the gold vault at the New York Fed are reaching out to potential acquirers for all or parts of Yahoo. 

And if that wasn't a long enough to-do list, Yahoo now looks to spend the next couple of months or more slugging it out with a stockholder who wants to fire all the directors and start over. Starboard, last seen negotiating over Olive Garden bread sticks, said Thursday that it would seek to have its preferred picks --including Starboard boss Jeff Smith -- replace Yahoo's entire nine-person board at an annual meeting that could come in June. 

Purple Drain
Since Marissa Mayer took over as CEO, Yahoo has morphed from tidy profits to mostly losses.
Source: Bloomberg
* Q4 2015 operating loss excludes an non-cash impairment charge. Including the accounting hit, the quarterly operating loss was $4.5 billion.

That stockholder election won't just be a vote on Yahoo's own directors versus Jeff Smith & Co. If it comes to a vote, it will be a referendum on giving (another) Yahoo turnaround a chance, or throwing in the towel and letting a new owner deal with this messy fixer-upper. 

It will be ugly for a while, but at least that outcome would provide clarity for a company that has none right now. But Yahoo never should should have let it come to this point. 

Starboard warned back in January that it thought Yahoo wasn't taking a potential sale seriously and that the company had wasted enough time and money after three years of unproven acquisitions and failed business plans. Eventually, even Yahoo agreed it would put up the "for sale" sign." Meanwhile, Yahoo's net revenue has fallen in nine of the last 12 quarters, including a 15 percent dip in the three months ended in December.

Then Yahoo poked the Starboard bear a couple weeks ago by appointing two new board members of its own on the same day the company was meeting with Starboard to talk through its concerns. If Smith didn't see Yahoo's move as a declaration of war, he should have. The company's appointments effectively entrenched the existing board  and made it look as if Mayer was rigging the system to buy herself more time for a turnaround instead of a sale.

Smith said in a letter on Thursday that "management and the board have pushed us away" in response to repeated efforts to "work constructively" with Yahoo. "We have been extremely disappointed with Yahoo's dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability and oversight by the board," Smith wrote.

But how about the lattes in the company café, Jeff? 

Pain, No Gain
Shares of Yahoo have fallen about 22 percent in the last year, reflecting market declines of Alibaba and Yahoo's own bungled strategies.
Source: Bloomberg

It would have been smarter for Yahoo to placate Starboard with a board seat or two, and say soothing things about how Yahoo values the feedback of its smart and handsome stockholders. After all, Yahoo has been in almost this exact position before -- and lost. During another Yahoo crisis period in 2011, the company and its CEO at the time antagonized the angriest activist of all, Daniel Loeb, who called Yahoo one of the technology's "most mismanaged companies." 

In the fight, Loeb won three board seats and -- irony alert-- engineered the appointment of Mayer to run the company. If it hadn't been for Loeb's crusade, Ross Levinsohn might be CEO of Yahoo right now.  

So Yahoo has already fought the same war against a similar opponent and lost. You can agitate an activist stockholder if you're Apple or some other company with a healthy track record of success. Yahoo is not that company. Wall Street already doesn't trust Yahoo to do the smart thing. And zero goodwill now means Yahoo is going into shareholder battle with armaments of stinky fish and waffle irons. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Starboard's plan includes dumping even the two new board members. 

  2. Or not. Yahoo CEOs don't tend to last very long. 

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net