Activist investor Dan Loeb correctly diagnosed Yahoo’s problem. After the Internet company spurned a juicy bid from Microsoft in 2008 at more than twice its current value and signed away the search business for a pittance, the Third Point founder turned his attention squarely onto the board – and has played a role helping to reform it. But he hasn’t yet provided a sound prescription to cure ailing Yahoo. Until he does, Loeb doesn’t deserve the four seats he wants on the board.
Dissidents often help turn around malfunctioning companies. Ralph Whitworth, of Relational Investors, for example, joined Genzyme’s board in 2010. He pushed for the $14 billion pharmaceutical company to focus on its most profitable drugs and fix production problems that had crippled sales. The company acceded and a year later the company was sold to Sanofi for more than $20 billion.
Loeb hasn’t made clear he has any such bright ideas. Instead, his appeal is merely to hold the company more accountable to shareholders. Third Point’s stake is significant, at nearly 6 percent. That’s why it wants more dispassionate oversight to make sure Yahoo doesn’t make any rash decisions.
But the company is already listening. Chairman Roy Bostock and co-founder Jerry Yang are resigning. A sale to private equity seems to have been taken off the table. And Yahoo is cautiously figuring out how to unlock value trapped in its 40 percent stake in Chinese firm Alibaba. That’s worth at least $14 billion, according to a valuation put on the firm by co-investor Softbank. And Yahoo recently balked at a complex transaction that might have resulted in quick cash but undervalued the stake.
The slate of directors Loeb has put forward – himself, two media executives and restructuring specialist Harry Wilson – doesn’t give a clear indication of what he thinks Yahoo should be doing. Without a plan, Loeb hasn’t earned four spots at the table. For now, he deserves just one. Given Wilson’s experience with distressed investments, including helping to reshape General Motors as part of the presidential auto task force, he should be able to help keep the pressure on at Yahoo.