Aside from the spinoff, Smith said his firm was also frustrated with the continued underperformance of Yahoo’s core businesses (search and display advertising).
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Yahoo has not responded to a request for comment this morning.
This is Starboard’s somewhat delayed response to the plan Yahoo rolled out last month, which was to cancel the spinoff of its valuable Alibaba stake (after pressure from Starboard) and say it will spin off the core Internet business instead – suggesting that the moves would take about a year. “This would include changes in management, changes in Board composition, and changes in strategy and execution”.
In announcing the new plan, Maynard Webb, Yahoo’s chairman, also told investors that the board hadn’t signed off a sale process for the Internet business, although he said directors had a duty to “entertain any offers”.
“Unfortunately, it appears that shareholders have no confidence that management and the board will be able to execute on a separation of these assets or improve the performance of the core business”, Smith said in the letter.
Yahoo stock dropped 1.4% in pre-market trade, to $31.75.
“The past year has been an extremely frustrating one for shareholders of Yahoo!”, the letter said, adding that the Alibaba spin-off “turned out to be a failed effort due to a changing tax landscape and serious concerns over the potential for massive tax liability”. But in a sign that many observers took as a signal that Yahoo is open to a sale, Mr. Webb said then that “the board has a fiduciary duty to entertain any offers”. “This will mean prioritizing and investing in certain parts of the business while at the same time deeply reducing unnecessary costs, selling or exiting many unprofitable businesses and research projects, and overhauling the incentives and compensation programs to instill sound business behavior”. “I don’t think many shareholders will get into the way of an activist slate”.
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Verizon Communications is among the technology, media and telecommunications companies seen interested in Yahoo’s core, with Verizon’s chief financial officer saying in December such a deal could make sense though it was premature to discuss. He said, “We are confident that both of these objectives are achievable, but will require a change in leadership and strategy”.
