​Yahoo investor Starboard demands leadership change

Yahoo investor Starboard Value has written a letter taking aim at the company's executive team, saying that despite their efforts to turn the business around, they need to step down to let someone else have a go.
Written by Aimee Chanthadavong on

Yahoo investor Starboard Value has written a letter to the Yahoo board of directors calling for a change in management.

In the letter, Starboard has taken aim at the company's executive team without naming any names, saying it has failed to turn around the core business and produce acceptable results, and, in turn, has caused massive declines in profitability and cash flow. In making these claims, Starboard has highlighted that new management is needed.

"To be successful, dramatically different thinking is required, together with significant changes across all aspects of the business, starting at the board level, and including executive leadership," Starboard Value managing director Jeffrey Smith wrote in the letter.

Smith went on to point out that Yahoo's current management has had over three years to improve the core business, but the only results the company's shareholders have seen is the ballooning of the company's annual operating costs by approximately $500 million despite declining revenues. In addition, the company has spent more than $2.3 billion on acquisitions -- with Smith adding that "most of these investments have been misguided, poorly overseen, and, ultimately, shut down. Even with these massive investments, the trajectory is decidedly negative".

During its Q3 2015 results, the company posted operating loss of $86 million over net income of $76 million and revenue of $1.226 billion. At the time, Yahoo chief financial officer Ken Goldman tried to dismiss the missed targets. In defending the results, he said the Yahoo management team was "pleased with our financial flexibility and strong balance sheet".

"The core business continues to be plagued with deteriorating financial performance and an accelerating number of executive leadership departures," Smith wrote.

Up until the end of last October, Yahoo went through three chief information security officers in less than six months.

Bob Lord took on the CISO role in October, following the departure of Alex Stamos in June to Facebook, and replacement Ramses Martinez leaving Yahoo to join Apple in August.

Previously, Yahoo CEO Marissa Mayer has been criticised for her harsh hiring practices, which would often lock out top talent.

Starboard has also strongly advised in its letter that Yahoo's proposal to spin off Aabaco Holdings is not the company's "best alternative". Instead, it insisted that Yahoo should explore selling off the company's core business -- Yahoo's search and display advertising business -- and leave Yahoo's ownership stakes in Alibaba Group and Yahoo Japan the same. It was a topic of discussion when Yahoo's board met in early December.

"The current valuation of Yahoo implies either a massive tax liability on Yahoo's minority equity interests in Alibaba and Yahoo Japan Corporation, or that the remaining operating assets of Yahoo are worthless, or some combination of the two," Smith said.

"While we agree that the failed separation has been frustrating, we are confident that a separation of these assets can be accomplished through either a sale of the core business or a spin of the core business. Either of these outcomes would result in a much more tax-efficient separation than the market currently implies."

In 2009, Yahoo signed an exclusive search partnership with Microsoft that saw Yahoo able to use Bing to power its search results, and Yahoo's sales force to exclusively sell the Microsoft-Yahoo search and advertising platform. In April last year, though, the deal was altered to allow Yahoo to use other search providers -- a plan that became reality in October, when Yahoo announced that it would use Google for some search results and advertising.

Yahoo also recently took the decision to block access to Yahoo Mail if users were using ad-blockers. Rather than loading the service, users are asked to pause their ad-block software before they can access their inbox.

On Tuesday, Yahoo reportedly shut down its on-demand streaming service Yahoo Stream without any forewarning, with plans to spread its video properties across its various digital magazines instead. Yahoo Screen was launched over three years ago, with Mayer saying at the time that she was impressed by the company's direction positing a positive third-quarter result for 2013.


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