Like most of my colleagues, I have been caught in the smog of quarterly financial releases — some good, some bad, many mostly indifferent. Still, all that busy-ness made me almost overlook at that activist investor Dan Loeb was leaving Yahoo’s board. He (through his investment fund) Third Point is walking away with a $655 million profit. The big question is why — and why now. Of course, one will not get any answers in the official statement from Yahoo.
First, let’s recap the news. According to the press release issued by the company, Yahoo will buy 40 million shares at $29.11 a share. Third Point also owns another 20 million Yahoo shares. After this transaction, Loeb’s holding was down from about 5.8 percent to about 1.8 percent. That equity is still worth $564 million and makes Third Point the sixth largest holder of Yahoo stock. As part of the deal, Loeb and his two appointees, Harry Wilson and Michael Wolf, are leaving Yahoo’s board.
Loeb joined the Yahoo board in May 2012 and was the lightning rod behind the recruitment of Marissa Mayer as the CEO of Yahoo. Their bet was that a high profile executive like Mayer would allow the company to get on the right path. He wanted the company to unlock the value of its Asian assets — holdings in Yahoo Japan and Alibaba — and Mayer has done exactly that. In the year Mayer has been at its helm, Yahoo has gone on a startup-buying binge including grabbing Tumblr for a billion dollars. Yahoo stock has more than doubled since Mayer debuted as the chief executive.
So the question is why did Loeb have to sell such a big portion of his stake? The next question is why now? And most importantly, if he was a good board member, why leave? He and his fund had three out of ten board seats; wouldn’t he add value and maintain the much needed pressure on company’s management? Forbes’ Jeff Bercovici put it well when he wrote, “No one has played a bigger role in setting the direction at Yahoo in the past two years than Loeb.”
There are some who believe that it time for Loeb to go and fight a different battle — this time with Sony, where, too, he has amassed 70 million-plus shares. I am not one of them and have been skeptical of Yahoo’s ability to turn around as it is fighting changing internet behaviors while hanging on to business models of the first phase of the Internet.
But there isn’t really any sign of a turnaround, as my colleague Mathew Ingram noted earlier this month. Like me, he remains highly skeptical of Yahoo’s ability to do a turnaround. Any growth in the stock has been because of the growing value of its 23 percent ownership of Alibaba — the Chinese e-commerce giant that is expected to go public at a nosebleed valuation in excess of $100 billion.
Yet, Third Point sold and took the precious cash, which could theoretically be used to buy another few companies and try and reinvent. Robert Cyran was brutally honest when he wrote at Breakingviews:
..the deal Mr. Loeb has secured looks pretty sweet. Yahoo is buying his shares at July 19’s closing price, guaranteeing liquidity without forcing Third Point to pay a discount, as usually happens when an investor offloads a large chunk of stock.
The only ones missing out are regular shareholders. Their stock has been shunted to the back of the buyback line. Nor are there any obvious candidates on the board to take on Mr. Loeb’s role either as a restraint on Ms. Mayer’s ambitions or as an advocate for proper capital allocations.
That’s important because it’s still not clear Yahoo can turn its internet business around without lots of deal-making and spending — last week the company trimmed its 2013 sales outlook, for example. Without proper oversight, that could destroy some of the very value Loeb has just cashed in on.
Loeb’s actions, when combined with Yahoo missing its second quarter revenue targets, leads me to wonder if Loeb has lost faith and that there isn’t really any turnaround happening anytime soon. Loeb and his fund are locking in their profit, and getting out of Dodge. His actions are causing anxiety in the investment circles according to WSJ’s MoneyBeat blog. For me it is Yahoo’s inability to change its DNA that makes me skeptical of the turnaround.