Thursday 19 April 2018

Internet dinosaur Yahoo is finally running out of time

Rebel investor steps up offensive at with plan to unseat the board

Yahoo chief executive Marissa Mayer
Yahoo chief executive Marissa Mayer

Andrew Dewson

Yahoo is still one of the great survivors of the internet age. But for how much longer? What began life in a Stanford University dorm as "Jerry and David's Guide to the World Wide Web" has been around for 22 years - in internet terms roughly the geological equivalent of the early Jurassic - and is now living on borrowed time.

For it to have any chance of survival, shareholders should bite the bullet and give in to demands from the activist investor Starboard Value.

Starboard has been agitating for change since it became a shareholder two years ago, and has never made any secret of its desire to shake things up. Meanwhile Yahoo's board members have dithered and delivered one disappointment after another - a policy that has kept their own gravy train full but done investors no favours.

Last Thursday, Starboard appeared to have come to the end of its tether, writing to other investors to demand that Yahoo replace its entire board with Starboard's hand-picked team.

Yahoo's board appears to be willing to fight now, but any chance of getting serious support from investors is surely long gone. The board should have fought harder and made brave decisions before their own cushy jobs were on the line.

Starboard's letter, addressed to "fellow shareholders", is about as harsh as these things get: "We have been extremely disappointed with Yahoo's dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability and oversight by the board.

"We believe the board clearly lacks the leadership, objectivity and perspective needed to make decisions that are in the best interests of shareholders." Ouch.

It's hard not to have some degree of sympathy for Marissa Mayer, the chief executive, who took on a Herculean if incredibly well-paid task when she left Google for the top job at Yahoo in 2012.

Not only was she tasked with turning an outdated, ailing brand around, but, as a female chief executive, the spotlight has always shone a little brighter on her than on many of her male peers. Even so, there is no getting around it: her leadership at Yahoo has failed.

Multimillion- dollar investments in content, including paying top dollar to hire a handful of big US media names, have not brought the desired results. The market wrote off Yahoo's core business a long time ago.

But not only has the core brand remained in the doldrums, Yahoo's board has been unable or unwilling to make tough decisions on its multibillion-dollar stakes in online wholesaler Alibaba and Yahoo Japan (a separate, profitable business).

Even if partially listing or selling those stakes would have given the company a hefty tax bill, at least it would have been proof of decisive leadership. Doing nothing with them is proof of the opposite.

The suspicion is that Yahoo's directors have been hoping that someone will do their work for them, and rid them of Starboard's attention into the bargain, by bidding for the company. The trouble is, the core digital business is moribund and, as Starboard noted, there has been one disappointment after another.

Why anyone in their right mind would pay billions for such a business is beyond most business analysts - and far beyond any potential white knight too.

While there is no guarantee that Yahoo investors would be rewarded by taking Starboard up on its offer, it's hard to see how new blood at Yahoo will actually make things worse. The board, including Ms Mayer, has been living on borrowed time. Time's up now.


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