By Pete Carey, San Jose Mercury News –
SAN JOSE, Calif. — Setting the stage for a battle to control one of the Web’s pioneering companies, Yahoo late Sunday appointed three new directors to its board, spurning the slate of candidates pushed by an activist investor who has been critical of the struggling company’s turnaround plan.
Daniel Loeb, whose investment company Third Point owns about 6 percent of Yahoo’s shares, quickly struck back and said he would seek to gain more control of the company. “Third Point intends to move forward with a proxy contest,” the investment company said in a statement. A proxy battle is waged by running an alternate slate of directors for election at a company’s annual meeting. Loeb’s slate included himself and three others.
A date for the annual meeting has not been set, but the outcome of the battle for control of the board will likely determine the future course of the company.
Yahoo is reportedly near a major reorganization already, one that could lead to thousands of layoffs. Scott Thompson, the former PayPal president who became Yahoo’s chief executive officer in January, has said he wants Yahoo to build mobile services and capitalize on the vast amount of data it has compiled on customers and internet activity. But despite the rejection of Loeb’s overtures, he has said he is open to all options for the company.
Third Point has been highly critical of Yahoo’s reported plans, which it asserts would come at the expense of the advertising and media that provide much of the company’s revenues.
It said Yahoo also has failed to recognize “the tremendous growth opportunity in video.”
Yahoo has struggled to regain its footing ever since rejecting a takeover offer from Microsoft in 2008 for $31 a share. It has already ousted one chief executive, Carol Bartz, for failing to restore the company’s fortunes, and has faced restive shareholders for years. The company’s stock at $15.40 a share is a far cry from what Microsoft offered.
Sunday’s announcement came after some efforts at compromise over the director appointments, but they failed, both Yahoo and Third Point agreed.
Third Point said it “offered several significant compromises to strike a deal and avoid a proxy contest.”
Yahoo said it offered to appoint one of Loeb’s candidates, corporate turnaround expert Harry Wilson, and one other “mutually acceptable” candidate.
Loeb wanted to be the second candidate, Yahoo said. But the board refused, saying “other candidates were more qualified” than the ones Loeb proposed.
Yahoo said it is open to working with Loeb, but that seemed a dim prospect.
Third Point said Yahoo’s board “has shown yet again that they are unable to execute deals that are in the company’s best interests.
“Sadly for shareholders — who will once more bear the costs — the consequence of the board’s refusal to accept Third Point’s shareholder-friendly proposals will be a time-consuming and distracting proxy contest that the company can ill afford.”
Yahoo’s new directors are John D. Hayes, vice president and chief marketing officer of American Express; Peter Liguori, former chief operating officer of Discovery Communications and a former Fox Broadcasting Network chairman, and Thomas J. McInerney, outgoing chief financial officer of IAC/Interactive. The company now has 14 board members but aims to pare that down to 10 at its annual meeting.
The Yahoo board said the new directors “bring a powerful mix of exactly the right ingredients to fuel Yahoo’s forward momentum.”
Loeb’s candidates are himself; Wilson; Michael J. Wolf, president of Activate Strategy, a consulting firm specializing in media, technology and entertainment executive; and Jeffrey A. Zucker, executive producer of a new show hosted by Katie Couric and past president and CEO of NBC Universal.
Yahoo said Wilson was the only candidate it would consider after evaluating “a wide range of candidates, including Third Point’s nominees.”
“The board is open to hearing Third Point’s ideas and to working constructively with Third Point,” the board’s statement said.
Third Point began building a 70 million share holding in Yahoo last August, sending a letter to the company’s board in September calling for some Yahoo directors to resign.
In a September telephone conversation with Yahoo co-founder Jerry Yang and Board Chariman Roy Bostock, Loeb called Bostock “part of the problem,” according to a Third Point filing with the Securities and Exchange Commission.
The conversation ended “abruptly when Mr. Bostock terminated the call,” Third Point said.
Yang resigned from the board in January. In February, Yahoo announced that Bostock and three other directors would not stand for re-election to the company’s board of directors. It also announced the appointment of two new directors, Alfred Amoroso and Maynard Webb.
Loeb complained that the new directors were “the hand-picked choices of the current board” and announced his own slate of four directors in March.