Activist investor puts Yahoo board in the line of fire

Activist investor Daniel Loeb has bought a significant stake in Yahoo and launched a campaign against the board following its dismissal of Carol Bartz, chief executive.

Mr Loeb’s Third Point said in a regulatory filing to the Securities and Exchange Commission on Thursday that it had amassed 5.1 per cent of the internet company’s shares and that it had written to the board to argue that its chairman and three other members should resign.

The disclosure suggested that the board could face its second proxy fight in three years amid growing shareholder anger with the company’s performance.

The board first came under fire in 2008, after it allowed negotiations for a takeover by Microsoft at $31 a share to fall apart.

It fended off a proxy challenge from activist Carl Icahn later that year by giving him a seat on the board, which he then abandoned in 2009.

The Microsoft debacle also led to Yahoo’s founder, Jerry Yang, stepping down as chief executive in favour of Ms Bartz, a fellow director at Cisco Systems whom he had recruited. But Ms Bartz was this week summarily dismissed after two and a half years.

In the letter to the board, included in the filing, Mr Loeb said that she was a poor choice to begin with, given her lack of consumer internet experience, and that the board had waited too long to fire her.

He said she bungled a smaller deal to share search advertising with Microsoft and alienated key allies at Yahoo Japan and Alibaba Group in China, where Yahoo has large minority investments.

The letter said the board had to take responsibility for allowing such lapses, which returned the company’s share price to levels as low as when Ms Bartz joined. The stock has risen about 15 per cent since her dismissal on Tuesday and closed on Thursday at $14.44.

“Merely replacing the company’s CEO – yet again – will not be enough to alter the direction of the company,” wrote Mr Loeb on behalf of Third Point, a well-regarded firm with $8bn under management. “Instead, a reconstituted board with new directors who will bring fresh eyes, relevant industry expertise and increased investor alignment to the table is immediately necessary.”

Third Point’s main offshore fund showed more than 33 per cent annual gains in both 2010 and 2009.

Yahoo responded in a conciliatory tone. “The Yahoo board recognises the critical challenges facing the company and appreciates constructive input from all shareholders,” a spokesman said. “Accordingly, the Yahoo board welcomes a dialogue about the concerns that have been raised by the Third Point filing.”

It had less kind words for Ms Bartz, who complained in an interview published on Fortune magazine’s website that her fellow board members were “doofuses” and that she intended to remain among them as a director.

“Ms Bartz is obligated to resign from the board and we expect her to do so,” said the board spokesman, Charles Sipkins.

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