Yahoo Reaches Agreement With Starboard, Averting Proxy War

  • Settlement also could facilitate a sale of core business
  • Starboard has had 10 other activist campaings since 2014

Yahoo! Inc. scored a narrow victory against activist investor Starboard Value LP, averting a proxy war that threatened its board and Chief Executive Officer Marissa Mayer, and letting management retain some sway in deciding the company’s fate.

Starboard will name Tor Braham, Eddy Hartenstein, Richard Hill, and Jeffrey Smith, Starboard’s CEO, to the board effective immediately, Yahoo said in a statement Wednesday. Starboard has withdrawn a previous slate of nine director nominees, and Yahoo will lose two existing board members, leaving the board with 11 members, four of whom are aligned with Starboard.

Avoiding a proxy war may increase the likelihood of a sale of Yahoo assets, a process that began in February. As part of the agreement, Smith will join the strategic review committee that’s handling bids for the company and potential alternatives.

“This constructive resolution will allow management and the board to keep our focus on our extremely important objectives,” Mayer said in the statement. “Management is looking forward to working with the entire board, including the new directors, to maximize shareholder value.”

Changing Tastes

Yahoo, the vehicle that helped millions of people discover e-mail and the Internet in the 1990s, has failed to keep up with changing consumer tastes and advertising techniques, losing audience and revenue to Facebook Inc., Twitter Inc. and Google. Since earlier this year, Yahoo has been searching for a buyer for its core operations, which have continued to decline in the past four years under Mayer, and coming to agreement with Starboard may help facilitate a purchase.

“The potential for a successful sale process has greatly increased,” said Colin Gillis, an analyst at BGC Partners. “Now you have someone who is on the board who represents shareholders’ interest.”

Shares of Yahoo fell 0.4 percent at the close of trading in New York to $36.95, less than the decline of Alibaba Group Holding Ltd., which fell 1.2 percent. Yahoo, whose value is mostly tied up in the Chinese search engine, often follows Alibaba.

Considering Offers

Last week, Mayer said the company is moving swiftly to consider offers to buy its Web operations. She said management speaks daily with Yahoo’s board committee created to conduct the Web portal’s strategic review. There is a “well-defined, aggressive calendar” to push ahead, she said.

The sale process accelerated in recent days as the company took first round bids, including Verizon Communications Inc., private equity-firm TPG and YP Holdings LLC, according to people familiar with the matter.

“We look forward to getting started right away and working closely with management and our fellow board members with the common goal of maximizing value for all shareholders,” Smith said in the statement.

Starboard, which has 1.7 percent of Yahoo, has pushed for changes at the company for more than a year. In the letter to shareholders last month, Smith said the board needs credibility. It’s important for the activist to be involved to ensure a “full and fair sale process,” according to the letter.

Starboard has been busy with at least 10 other campaigns since making their Yahoo demands public in September 2014, including Macy’s Inc., Staples Inc. and Marvell Technology Group Ltd. The chipmaker said Wednesday that it has agreed to reshape its board, giving in to demands from Starboard as it struggles to right itself after an investigation uncovered accounting issues and its CEO and president left their positions.

Starboard’s most famous board overhaul was in 2014 when it 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.

‘Biggest Complainer’

The agreement with Yahoo shows that Starboard got solid results with the board -- even with less than 2 percent of the holdings, according Greg Portell, partner at A.T. Kearney. At the same time, it helps Yahoo’s board in the future.

“If I’m Yahoo, I put the biggest thorn in my side on my team,” Portell said. “They just took out the biggest complainer they have.”

Yahoo’s new board will add members with varied media and financial experience. Braham was previously the global head of technology mergers and acquisitions at Deutsche Bank Securities Inc. and, before that, a mergers and acquisitions banker at Credit Suisse First Boston. Hartenstein, a media executive, previously served as CEO of the Tribune Company as well as DirecTV. Hill has served as chairman and interim CEO of Tessera Technologies, which is involved in chipmaking.

Starboard paid the three nominees $50,000 each to be part of its slate, a regulatory filing shows. All four new directors, including Smith, will be paid $60,000 annually by Yahoo, along with other standard non-employee director compensation.

Tom McInerney will be the chairman of the strategic review committee, joined by Eric Brandt and Starboard’s Smith. Yahoo Chairman Maynard Webb won’t serve on the committee, though he will be invited to attend and participate in the meetings, according to the filing.

At this year’s annual meeting, two incumbent directors, Lee Scott and Sue James, will not stand for re-election. The company will hold the meeting no later than June 30, according to the filing.

As part of the agreement, Yahoo agreed to reimburse Starboard for as much as $2 million of its costs, and signed a mutual non-disparagement clause -- both common in such settlements.

Should Yahoo pursue a spinoff of its operating company, Starboard can name as many as three directors for the separated entity, one of whom can be an employee of the hedge fund, the filing shows.

Before it's here, it's on the Bloomberg Terminal.