Wednesday, April 30, 2008 Motorola Changes Not Enough

Cross-posted from this morning's

Motorola's (MOT - Cramer's Take - Stockpickr) fall from its perch atop the mobile-phone world has taken less than a year.

A year ago, the company successfully convinced its shareholders that they shouldn't elect Carl Icahn to the board, after the activist shareholder ran an unsuccessful proxy contest to shake things up at the company. Motorola management claimed that he was out of touch with the long-term interests of the company, as he had called on Motorola in early 2007 to initiate a massive stock-buyback plan and take on significant debt.

Management promised a turnaround was right around the corner for the 80-year-old company, with exciting new handsets beyond the Razr, and shareholders chose to believe them.

Today, Motorola's former CEO, Ed Zander, is on his way out after a string of missed quarters following last year's annual meeting. The company still has no stand-alone head of its mobile devices business (the current CEO, Greg Brown, is acting head). And the much-promised new handsets have been flops. Motorola now says the next batch of exciting new devices won't appear until well into 2009.

Instead of facing a proxy battle with Icahn again this year, Motorola recently folded its cards and agreed to appoint two of the investor's representatives to the board. The company also caved to Icahn's demand that the company split itself up in order to better recognize the value of the underlying businesses.

You might think these moves are enough to bring back the magic at Moto. They're not.
For the last 20 years, Motorola has perennially underperformed its potential. Back in the 1980s, Motorola was an American icon, a name arguably as big as General Electric's (GE - Cramer's Take - Stockpickr). Today, a comparison between the two is laughable. From 1992 through today, GE stock gains have outperformed Motorola roughly 450% vs. 50% (vs. 250% for the S&P 500).

History Repeating

What's also maddeningly frustrating for me as a shareholder is that Motorola already lived this current nightmare of its revenue dropping off a cliff 10 years ago. The company had a hot phone that grew so popular it took attention from developing other devices until -- after a great run -- the well ran dry and the company had to start from scratch. I'm not talking about the Razr -- but the StarTAC.

If you bought some Moto stock 10 years ago, you were getting in just as the StarTac was becoming the "must have" phone at the time. Attention-craving execs would lay it out on their lunch tables, eliciting compliments from others. Your Moto investment would have doubled in a couple of years.

Fashion designers know they have to change their lines every season, but Motorola's board and management team didn't. They failed to produce any popular successors, and Moto's shares lost 75% of their value from 2000 to 2003.

The board brought in Ed Zander in early 2004 to replace former CEO Chris Galvin. The ultra-slim Razr was just being released and it became the new StarTac. From the start of 2004 to October 2006, Moto's shares rose 60% -- triple the S&P's performance.

After three years of selling Razrs, with countless knock-offs, Motorola again hit the wall. Its stock is down 63% from 18 months ago. Despite its latest changes, Motorola needs to do much more.

Last July, worried that the company was going to sit back after beating back Icahn's bid for a board seat, I launched an activist campaign as an individual shareholder in Motorola. Using Web tools like blogging, YouTube videos, wikis and a "pledge your Moto shares" widget, I encouraged 130 other small investors to pledge a collective 600,000 Motorola shares (worth about $6 million today) in support of a "Plan B" of changes for the company to follow.

Unfortunately, the company failed to enact almost all of our "Plan B," except for replacing Zander.

When I launched my own activist hedge fund earlier this year, I deliberately bought no Motorola shares (although I still own some personally). Based on Motorola's inaction since I began my campaign, I couldn't look my own shareholders in the eye and justify an investment in the company.

However, I still feel a sense of loyalty to the many people who joined up with my campaign last year and want to see this company finally right itself. Many of the 130 people who "pledged" their shares with me last year were current or former Moto employees. Some of them have recently contacted me and asked my opinion on how they should vote their shares at the upcoming Motorola annual meeting on May 5. To them, I say: You have the power to finally improve this company by how you vote your shares.

A Bureaucratic Board

Motorola's board is highly dysfunctional. At 14 members, it's too large and bureaucratic. In my experience, when boards get larger than 10 members, they become more formal, there is less time for discussion and debate and the directors are more reluctant to speak up. It becomes less like a meeting of high-level advisers wanting to understand the growth of the business and protect the interests of shareholders and more like a slow day at the U.N. General Assembly.

Motorola has some very strong members (including its new Chairman David Dorman, who used to run AT&T (T - Cramer's Take - Stockpickr), and Tom Meredith, who has been acting CFO since last year and formerly Dell's (DELL - Cramer's Take - Stockpickr) CFO). And although the two new Icahn reps should help matters, this board needs an overhaul.

This group, charged with overseeing and monitoring the state of Motorola on behalf of shareholders, clearly shares the blame for what has happened. Yet, all the incumbent directors from last year (except Zander) are up for election again this year. That's simply wrong.

What's particularly puzzling is why Samuel Scott III, Judy Lewent, Nicholas Negroponte and Dr. John White are still on this board. I don't have anything against the backgrounds or experience of them, but each of these directors has been on the board for more than 10 years. That means they've had a front row seat to the two boom-and-bust cycles of the StarTac and the Razr. How could they let exactly the same problems occur twice under their watch?

Even in the best performing companies, no director (unless they're a founder or critical officer) should be on a board for a decade. Fresh eyes should be periodically cycled into the group to ensure it never becomes too clubby. For a company that's lost half its value in the last decade, it's unconscionable to have four directors with such a lengthy tenure. (Scott's actually been on the board for 15 years.)

Unless you're the owner or the owner's child, you don't get to drive out half the value in a company over 10 years and keep your job.

That's why all fellow Motorola shareholders should vote "withhold" for directors Lewent, Negroponte, Scott and John White. They should also vote "for" the three shareholder proposal on say-on-pay, recouping unearned management bonuses and new corporate standards at Motorola. In doing so, they'll embarrass the old guard into leaving.

Voting "against" directors does have an impact. I urged institutional and retail shareholders to vote against several of Yahoo!'s (YHOO - Cramer's Take - Stockpickr) directors last June (here's one of my YouTube political-style campaign ads). Thanks also to the company's poor performance, high executive compensation and support from some of the proxy advisory firms, several Yahoo! directors received over 35% "against" votes. Six days later, Terry Semel resigned as CEO.

Motorola shareholders should be upset at this company's performance. But Icahn's involvement is not a cure-all. It would be easy to be a free rider as a shareholder and think that you can leave it to Icahn to fix things. That's not enough. Many more changes need to be made at the board-level and within this company. Get out and vote.

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Wednesday, April 23, 2008 CSX Stands Ground Against Activists

Cross-posted from my article from today:

In the face of a gloomy economy where consumer spending is tepid, some of the smartest minds in the investment world have recently made big bets on the sleepy railway transporters. First it was Warren Buffett buying a big stake in Burlington Northern(BNI - Cramer's Take - Stockpickr). Bill Gates' investment vehicle also has a large stake in CN Railway. Both have been winning bets, appreciating 27% and 6% respectively in the last year.

But both of these transporters' gains have been eclipsed by Jacksonville-based CSX(CSX - Cramer's Take - Stockpickr), which has racked up a 45% increase in its share price in the last 52 weeks -- mostly coming in the last three months.

While Buffett and Gates have been passive investors in Burlington Northern and CN Rail, CSX has generated this performance while battling a group of activist investors led by Christopher Hohn of London-based The Children's Investment Fund (or TCI).

You might remember Hohn teamed up with Atticus Capital in 2005 to battle the German stock exchange Deutsche Borse. The two firms adamantly protested the German stock exchange's plans to merge with the London Stock Exchange(LSE - Cramer's Take - Stockpickr). When other investors sided with this view, Werner Seifert, the CEO of Deutsche Borse at the time, quit. It was reported that Hohn had told Seifert that his investor group was so powerful that they could nominate Mickey Mouse and Donald Duck to Deutsche Borse's supervisory board (board of directors) and have them approved by other investors. Seifert later titled his memoirs Invasion of the Locusts, referring to Hohn and the others he battled against.

Hohn had an equally high-profile and successful battle with ABN Amro(ABN - Cramer's Take - Stockpickr) in 2007. He bought up a 1% stake in the Dutch bank and began to call for its sale. After ABN lined up a deal with Barclays, TCI agitated for a better price. RBS(RBS - Cramer's Take - Stockpickr) finally swooped in to buy the bank and helped deliver a 70% return for TCI for a few months of work.

With these and other successes, TCI has delivered a 41.98% three-year annualized return, making it the ninth best performing hedge fund in the world, according to Barron's. The EuroHedge Awards crowned TCI the "Fund of the Year" in 2004 and 2005. Assets swelled from $3 billion in 2004 to over $15 billion today.

But the CSX investment has also proved a challenge for Hohn. TCI went public with its criticisms of CSX last October, with a long list of complaints that were mostly governance-related. They wanted the Chairman and CEO roles split, new directors to replace those with tenures of over a decade, and asked that shareholders be able to call special meetings. They also criticized that the company wasn't managing its costs well and had under-performed its peers of late. This was true for the 12 months prior to TCI's complaints, but CSX had significantly out-performed its peers if you went back further back in time.

CSX shot back at TCI in November, rejecting its demands. Most damning to TCI in the response was that CSX brought some previously private demands TCI had made over the previous 10 months to light. According to CSX, TCI had asked CSX to do a leveraged buyout, to lever up the company with "junk" debt to fund a massive share buyback, to commit to doubling its prices to customers over the next decade and to "freeze capital spending for growth until Congress determines the outcome of an issue that has been the subject of its policy debate for more than 20 years."

But CSX didn't stop there. The company proceeded to sue TCI for improperly disclosing its actual CSX ownership that was held in SWAPs. They also successfully managed to paint TCI as an ominous foreign threat to U.S. national interests, getting local politicians to question the "aggressive" actions of Hohn and TCI.

For his part, Hohn fought fire with fire and has, in turn, counter-sued CSX and accused the board of insider trading. TCI has announced its own slate of directors to be elected to the board, and a proxy battle appears set for June.

It's not clear whether Hohn will win the support of other institutional investors.

Although CSX's stock is up 29% since TCI first announced its complaints, investors need to weigh who will do the best job of overseeing CSX's activities beyond the annual meeting. Will other shareholders see TCI as a short-term opportunist or a long-term steward of CSX's best interests? CSX has effectively portrayed TCI as having inconsistent and poor ideas for how the company should be managed.

The battle is reminiscent of the first proxy battle Carl Icahn ran against Motorola(MOT - Cramer's Take - Stockpickr) last year. The handset maker was able to convince shareholders to trust them over Icahn due to the activist initially calling for increasing its debt-load and doing a buyback just as the company was about to see its sales fall sharply, causing it to need every dollar on its balance sheet.

Hohn's been successful with a "rough edges" and aggressive style of activism. For his 2006 Christmas card, his family trumpeted to friends that "Chris has had an exceptionally exciting year overthrowing German CEOs and expanding his investment conquests to China and Brazil."
CEOs have long bristled at TCI's demands for change and recently some investors have too. Yale's pension fund, which was one of the original investors in TCI when it started in 2004, pulled its $500 investment in 2006 after TCI retroactively raised its fees to existing investors presumably because of the hedge fund's success.

Hohn's initial successes as an investor were all event-driven. He became the loudest voice of shareholders in favor of or against a merger or buyout happening. When he started to broaden his approach to go after targets in an activist way (with a long-term time horizon for improving a company absent any specific "event"), he's run into problems. CSX has stiff-armed him to date in the U.S. and he's hit another brick wall in Japan with his investment in the utility J-Power.
Chris Hohn and TCI are still very successful, as their Barron's hedge fund ranking shows.

However, they've made several mistakes in the CSX battle which they -- and other activist investors -- should learn from for future campaigns:

- A battering ram approach that is publicly critical of targets can be very successful in an event-driven context but does not always work in activist situations. Negotiation, diplomacy, cajoling, humor and tact are just as important when meeting with an activist target as the threat of "going negative" in a public battle. TCI's successes in the activist realm will increase as they demonstrate their abilities in these softer skills.

- Avoid inconsistencies. This applies to politicians and activist investors alike. Your words can be easily used against you by your opponents in a debate, so don't give them any ammunition. Activist investing requires a lot of up-front work in selecting targets and the kinds of actions you think would create value if implemented. If you advocate changes that come across as potentially weakening the company in the long-term (such as taking on significant debt), expect a tough time convincing your fellow institutional and pension fund investors to go along with your prescriptions.

- CSX didn't exploit this, but TCI initially disclosed in October that it held "shares in other US railroads but has not had to launch similar campaigns there because managements have been more co-operative." If I was a CSX shareholder without holdings in CSX's competitors, this would be a red-flag. It says to me that the company has mixed motives -- even if it doesn't. Activist investors need to avoid any perceived conflict of interest and should therefore avoid investing in competitors.

I would bet that CSX will likely prevail in the June proxy battle for the same reason that Motorola's investors refused to embrace Carl Icahn in his first attempt at a board seat last year. On top of that, CSX's relative performance to its peers and the market has been good in recent years. It's tougher to rally the troops in opposition to management when that investment is one of your better performers.

If his proxy fight fails at CSX, Chris Hohn will then have to decide whether to stay on as an investor and look to fight another day or cash in his winnings and move on. Activist investing is still a place which allows the "loser" to walk away with a 30% gain. That should help nurse TCI's wounds.

At the time of publication, Jackson was long MOT.

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Thursday, April 17, 2008

MarketWatch: Without Web search, what is left of Yahoo?

Outsourcing search would have been a good move in the past, experts say

By John Letzing, MarketWatch
Last update: 1:41 p.m. EDT April 17, 2008

SAN FRANCISCO (MarketWatch) -- Yahoo Inc. has battled Google Inc. over the lucrative online search advertising business for years, spending hundreds of millions of dollars in the process on related technology even as it's faced an increasingly daunting task.
So when Yahoo announced last week it would test having Google handle a portion of its search advertising business in exchange for a share in the proceeds, it was seen by many as an insincere move aimed only at squeezing a better acquisition offer out of Microsoft Corp. See related story.
Yahoo argues that it merits a better offer than Microsoft's $44.6 billion bid made more than two months ago, as its prospects are still bright as a stand-alone company. A search outsourcing arrangement with Google, for example, could net hundreds of millions of dollars in additional annual revenue for the Sunnyvale, Calif.-based company.

Many analysts and investors have long urged Yahoo to outsource its search service in order to narrow its focus. But those same analysts and investors now say that the option has most likely expired, as Microsoft is bearing down with an increasingly hostile bid.

Yahoo was widely thought of as an online media company when it began to pursue the expensive development of its own search technology, called Project Panama, a stew of complex code meant to provide better results for users. Jefferies & Co. analyst Youssef Squali has estimated that Yahoo has spent $150 million on Panama -- while outsourcing search to Google could add between $800 million and $900 million to its 2009 revenue.

Outsourcing search would also allow the return of a media focus for Yahoo -- on the better targeting of graphical display ads around sports and finance content, for example, while developing new features such as its AMP technology for distributing of such ads. That in turn could hew to the vision former Yahoo Chief Executive Terry Semel had for the company, albeit roughly a year after he was compelled to step down.

"I don't think it quite rises to irony," said Endpoint Technologies Associates analyst Roger Kay, though he added that, "Doubling down on display was what Semel was all about."

"If he'd said we're going to be king of search, maybe they could have kept up with Google," Kay said, "but they went off in the media and content direction and they lost time."

Semel resigned in June following criticism that his push for Yahoo to be a media company and search leader was muddled, and ultimately destructive. Semel's successor, Jerry Yang, has sought to present a clearer vision for the company, albeit with mixed results.

Outsourcing search to Google could therefore help investors understand Yahoo's direction. And Yahoo is familiar with the concept -- until early 2004, the company depended on search technology provided by the then-closely held Google.

"They should never have dropped using Google in the first place, and they should have bought Google when they had the chance five years ago," said Eric Jackson, a Yahoo shareholder who has been a vocal critic of both Semel and Yang.

Still, Jackson said that while first delving into the search market was a poor choice, he doesn't believe Yahoo's move to outsource to Google means that it sincerely wants out.

"It's less about them becoming a pure media company than deal gamesmanship" with Microsoft, Jackson said.

One less ball in the air, as the air runs out

"My concern is Yahoo has a lot of balls in the air," said Forrester Research analyst Shar VanBoskirk. Abandoning a losing search effort could therefore be a boon for a company in need of focus, VanBoskirk said. "They should just cede the search space to Google and focus on online ads, they are a much better media firm than Google."

Ceding the search market seems to already be underway, even without Yahoo's consent. According to data from comScore Inc., Google broadened its already substantial lead over Yahoo in March, capturing 59.8% of the U.S. search market, compared with Yahoo's 21.3%. And in terms of the sales wrung out of those respective market shares, Google dominates in the U.S. -- it pulled in 71.2% of U.S. paid search revenue in 2007, according to data from research firm eMarketer Inc., while Yahoo pulled in a mere 8.9%.

Yahoo has said publicly that it's seeing progressively better results in its search business thanks to Panama. But analysts such as VanBoskirk nonetheless bemoan the resources that Panama's diverted. "The Panama platform has some promise, Yahoo is just focused so much on the technology it's neglected its social media platforms, and its ad targeting capabilities," VanBoskirk said.

But VanBoskirk is afraid that at this point, Yahoo's move to outsource search is just an ill-fated ploy to fend off Microsoft. That's because Microsoft could likely scuttle any search partnership formed with Google upon assuming control of Yahoo. And despite Yahoo's wrangling, its sale to Microsoft is widely seen as a likely outcome.

Yahoo indicated early Thursday that results of its search outsourcing test with Google have been encouraging, which may lead it to expand the partnership. See related story.

Those early results may not be surprising, as Google has traditionally managed to reap more revenue out of its search market share than Yahoo. In addition, similar search outsourcing deals that Google has reached with companies such as IAC/InterActive Corp.'s generally involve handing a generous portion of the resulting revenue to its partner.

Unlike, however, Yahoo holds a large share of the market. An expanded deal with Google would therefore amount to the number two search provider selling share to the market leader, likely drawing close scrutiny from antitrust regulators.

Yahoo has said its outsourcing test with Google will cover only 3% of the searches done on its U.S. site, which may alleviate some antitrust concerns. And while the companies could pack that 3% with only the most lucrative of search terms, thus increasing its practical impact of the deal, Endpoint Technologies' Kay said that's unlikely. Instead, the move should be seen as a symbolic challenge to Microsoft, more than anything else.

"In theory, it could be the juiciest 3% of words packed in there and that could make the deal different, but I don't think that's the point," Kay said. "The purpose is to create inconvenient links harder to make the deal with Microsoft."

John Letzing is a MarketWatch reporter based in San Francisco.

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Thursday, April 10, 2008

Washington Post: Murdoch's 2-Pronged Bid May Boost Yahoo

By Frank Ahrens and Peter Whoriskey

Washington Post Staff Writers

Friday, April 11, 2008; Page D03

Media mogul Rupert Murdoch is working both sides of the fence in an effort to acquire Yahoo -- negotiating directly with the Internet portal while also attempting to join Microsoft's two-month-old bid for the company, according to sources close to the deal.

The result may be a higher price for whoever ends up with Yahoo.

A source close to the talks confirmed conversations between Yahoo and Murdoch's News Corp. yesterday. The source spoke on the condition of anonymity because the talks are private.
At the same time, Murdoch is working with Microsoft on a combined bid for Yahoo, in which he likely would contribute cash, his MySpace social networking empire and his Fox Interactive Media division.

Yahoo is also in discussions with Time Warner on a deal that would send AOL to Yahoo in return for an ownership stake in the combined entity, according to sources close to the talks. Yahoo's board is scheduled to meet today to discuss the company's options, the sources said.

All of this is happening as Yahoo tries to bolster its position against Microsoft by striking an experimental deal with Google, in which the search giant would serve ads to Yahoo users.

Despite Murdoch's two-fisted dealmaking, the smart money is still on Microsoft gaining sole ownership of Yahoo, said Eric Jackson, president of Ironfire Capital.

"Yahoo is really doing everything it can to at the very least encourage a higher offer," said Jackson, who also leads a group of investors holding 2.1 million Yahoo shares, which is less than 1 percent of the company. "I give Yahoo credit for scratching together this test deal with Google and credit for getting the rumors leaked about AOL, but at the end of the day neither of these options is going to trump the existing offer from Microsoft."

Yahoo's try-everything strategy may still pay off, even if the company ends up in Microsoft's hands. The moves likely enhanced the company's bargaining position as it tries to fend off or raise Microsoft's $44.6 billion takeover bid.

This week, Piper Jaffray analysts wrote that in their sample of 20 Yahoo institutional investors, the majority suggest they "prefer the current deal [with Microsoft] to no deal."

Yesterday, those analysts wrote that because of Yahoo's possible arrangements with Google and News Corp., "Yahoo has now seemingly assumed a far more powerful position in the negotiations. Considering the many new developments, it is difficult to predict an ultimate outcome to this ongoing saga; however, we do believe that now there is a distinct possibility
Microsoft could raise its bid for Yahoo."

Yahoo has rejected Microsoft's bid, calling it too low, and is now working against a ticking clock: In an April 5 letter to Yahoo's board, Microsoft chief executive Steven A. Ballmer gave the company three weeks to accept the bid or Microsoft would wage a proxy battle, taking its offer directly to shareholders.

Microsoft's bid valued Yahoo stock at $31 per share. Yahoo closed up 82 cents yesterday, to $28.59. Shares of Microsoft closed up 22 cents, to $29.11, and News Corp. closed down 9 cents, at $19.44.

News Corp. and Yahoo declined to comment yesterday.

Murdoch would like to combine the vast user base of MySpace with the popularity of Yahoo as a way of potentially wringing substantial income out of MySpace.

Microsoft, meanwhile, would like Yahoo to partner with its MSN to eat into the search and search-based advertising dominance of Google.

Jackson said he and other Yahoo shareholders remain eager for Yahoo to make a deal with Microsoft.

"I think there is some frustration that this has dragged on as long as it has," he said. "People are getting to the point where they just want to see this done."

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Motorola Appointing Dave Dorman as Chair is a Positive

Yesterday, Motorola announced that Dave Dorman will take over from Ed Zander as the Board's Chair. I very much support this development.

When I first spoke out for changes at Motorola last summer, I was critical of the management and the board. There are several directors whose tenure exceeds 10 years. Simply put, they've now overseen the rise and fall of StarTAC and RAZR -- with nothing learned and no consequences.

Carl Icahn getting 2 seats at the table helps, but more work needs to be done in over-hauling this board. Some of the old guard need to move on.

Dorman is a breath of fresh air for shareholders. He has relevant experience and a solid reputation.

Here's what I said about him and the rest of the board last summer:

If you had a sense of déjà vu watching what happened with RAZR, it’s because Motorola has lived the story before of riding the wave of a hot product without sufficient heed to where the industry is moving to. Ten years ago, it was with StarTAC: the “iconic” hit phone, which was analog-based. All the signs pointed to the industry moving to digital. However, Motorola’s plans for digital phones were delayed, so that additional resources could “feed the beast” of StarTAC. The company almost drove off the precipice as a result. Fortunately, for its customers, employees, and shareholders, it pulled itself back from the brink. You would hope that an organization would institutionalize the learnings of such a heralding experience. Yet, the parallels between RAZR and StarTAC are eerie. Why didn’t Motorola learn?

Chris Galvin, the former CEO and grandson of Motorola’s founder, is no longer around. However, 4 of Motorola’s current board of 11 were around. Judy Lewent, the CFO for Merck, has served on the board since 1995. Nicolas Negroponte, a director of the MIT media lab, has been on the board since 1996. Dr. John White, the Chancellor of the University of Arkansas, has been on the board since 1995. And Samuel Scott III, the head of a corn refining business, has been on the board for almost 15 years.

In the wake of Sarbanes-Oxley, a lot of attention has rightly been paid to the issue of board “independence.” It is a good thing to have directors who are sufficiently vigilant and will ask hard questions of management. Yet, how “independent” can you be when you’ve served on a board for over a decade? Meg Whitman, CEO of eBay, famously said that no CEO should stay in the same job for 10 years or they risk becoming stale in the saddle.[6] We agree and think this same benchmark should apply to all corporate directors for the sake of fresh eyes and energetic vigilance.

One argument a defender of keeping a director on the same board for over a decade could make is that: it is critical for retaining some “institutional memory” in board discussions. Presumably, these longer-serving directors could remind their shorter-tenured brethren about organizational mistakes made in the past that shouldn’t be repeated – such as StarTAC. We thank Ms. Lewent, Mr. Negroponte, Dr. White, and Mr. Scott for their service, but respectfully and strongly suggest that the company would be better served by new independent directors with strong business and communications experience....

[T]he Motorola board has – in the past – chosen to appoint directors with an abundance of experience outside Motorola’s core communications industry. While we don’t advocate a board only consisting of industry veterans, we believe a solid majority should be experienced within the markets in which Motorola directly competes, rather than – for example – from the pharmaceutical, consumer packaged goods, agricultural, and academic worlds. Therefore, we suggest replacements for the 4 people named above reflect this.

New Motorola director David Dorman who is ex-AT&T fits the bill for what we’re asking.

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GeoEye-1 Ready for Launch

General Dynamics has completed its testing of GeoEye-1, the next-generation satellite to be launched later this August by GeoEye (GEOY).

The press release is here.

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Tuesday, April 08, 2008

Kiplinger: Investors Revolt Online

Shareholders flex their muscles on a variety of subjects, and the Internet is often their forum.

By Anne Kates Smith, Senior Associate Editor

From Kiplinger's Personal Finance magazine, May 2008

To see the new face of shareholder activism, go to YouTube, MySpace or the blogosphere. That's where corporate consultant Eric Jackson, who owns 96 shares of Yahoo, launched a campaign last year to make the struggling Internet company more accountable to investors.
This year, he marshaled 135 investors holding about 2.2 million shares to persuade the company to accept Microsoft's (or some other bidder's) takeover offer. "We want a deal at the highest price, and we're ready to tender our shares," he says.

The Internet may increase activism among individual investors, says Patrick McGurn, a proxy expert at RiskMetrics Group. But online or not, shareholders big and small are putting corporate boards on the hot seat this annual-meeting season, expressing their views on everything from executive pay to the subprime-mortgage meltdown.

Some campaigns aim to unseat board members. The CtW Investment Group, which is affiliated with a coalition of labor unions, wants board members at six financial firms, including Citigroup and Merrill Lynch, to explain what they did to manage subprime-loan risks. Says CtW's Mike Garland: "Absent compelling explanations, we'll recommend that shareholders vote against reelection."

Other activists want to put specific proposals up for shareholder vote -- or at least get management to address the issues involved. "Say on pay" resolutions call for a thumbs-up or a thumbs-down on executive compensation. Other hot-button issues this year include political contributions and climate change.

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The Deal: Yahoo! end game might hinge on Q1 results

The Deal Posted on April 7, 2008 - 5:29 PM

Responding to an ultimatum from Microsoft Corp. [MSFT] giving it three weeks to agree to the software giant's takeover offer, Yahoo! Inc. [YHOO] on Monday reiterated that the $41 billion bid undervalues the company.

In a letter addressed to Microsoft CEO Steven Ballmer, the Internet company also said it does not oppose a deal with Microsoft, although a source representing Yahoo! emphasized that it has never refused to entertain an offer. "While technically we have not said before that we were not opposed to a deal, that's always been the position," the source said, who spoke on condition of anonymity. "We're making it more explicit because Microsoft has been misrepresenting our position that we haven't negotiated with them. The issue here is that their bid undervalues us and does not provide a basis for discussion."

In a letter delivered on April 5, Microsoft claims Yahoo! has not entered "substantive negotiations" on a deal. Mountain View, Calif.-based Yahoo! contends this assertion "mischaracterizes" the nature of discussions between the companies, which Yahoo! said includes integration and regulatory issues. Ballmer also could have taken steps to advance the talks, Yahoo! said.

Microsoft's three-week deadline to reach an agreement concludes just days after Yahoo! reports first-quarter earnings on April 22. A strong performance for the quarter would bolster Yahoo!'s case that Microsoft's $31 per share offer undervalue the company, while weak results would put even more pressure on Yahoo! executives to sell.

"What I think Microsoft is doing is ratcheting up the pressure on Yahoo! on the assumption that Yahoo! is going to come in with a weak quarter," said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co. LLC. "Microsoft is probably betting that because they have a good handle on the online advertising themselves."

In its letter Yahoo! reaffirmed that it remains on track to meet previous financial guidance for the first quarter and full year. The company expects first-quarter revenues of $1.28 billion to $1.38 billion, or 8.2% to 16.6% higher than the $1.18 billion reported in the year-ago period. Lindsay said anything less than a double-digit increase would constitute a poor quarter for Yahoo!.

Lindsay also said that if Yahoo!'s results fail to impress, the best it can hope for in a deal with Microsoft would be the original $31 a share cash and stock bid. The offer currently is valued at $29.56 due to a decline in Microsoft's share price since it tabled the offer on Feb. 1.

Jefferies & Co. [JEF] analyst Youssef Squali expects Microsoft's move to force Yahoo!'s hand to work because the target has few other alternatives. In a research note, Squali predicted that Yahoo! shareholders will conclude that Microsoft's bid is a better bet than Yahoo!'s financial forecast. But if Yahoo!'s board shows a willingness to negotiate, avoiding a prolonged proxy fight with the Redmond, Wash., software maker and avoiding an exodus of Yahoo! employees, the Internet company might extract a sweetened bid, he added.

Merrill Lynch & Co. [MER] analyst Justin Post said a deal between the companies remains likely, but not at a higher price. Yahoo!'s "inability to find a credible alternative," along with weakness in Microsoft's stock price since the deal was announced, "make a substantial increase in the offer price much less likely," he said in a research note.

Eric Jackson, who last year led a small group of Yahoo! shareholders in pressing for the resignation of CEO Terry Semel, said he expects a negotiated deal between the two companies to be signed before the end of the three-week deadline and that Microsoft will bump up its bid slightly to avoid the costs and distractions of a proxy fight. "I don't think Yahoo! has handled the process very well--they should have engaged Microsoft more than it appears they have," he said. "It's clear they don't have options, so they're really in a tough spot. Playing hard-to-get makes me a little nervous as a shareholder." -- David Shabelman

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BusinessWeek: Motorola Caves to Icahn

The troubled cell-phone maker agrees to back two board nominations from activist investor Carl Icahn

Technology April 8, 2008, 12:01AM EST - BusinessWeek

By Olga Kharif

When Motorola CEO Greg Brown agreed on Apr. 7 to back two of Carl Icahn's nominations to the company's board of directors, it was an admission of defeat. Icahn, the activist shareholder who has been calling for changes at Motorola (MOT) and demanding board representation for a year, had substantially beefed up his stake in the cell-phone and network-equipment maker in recent months, likely rendering further efforts to block his nominations moot.

Since Icahn first demanded a board seat a year ago, his voting power has more than doubled to 6.4%, according to Securities & Exchange filings as of late March. While that alone wouldn't be enough to elect his representatives, Icahn is believed to have built considerable support among other agitators. "Other pushers for change have started to move into the shares," says Ronald Orol, author of Extreme Value Hedging: How Activist Managers Are Taking On the World (Wiley, 2007).

Icahn might have gained some board seats—perhaps as many as four—at the annual meeting in May, says Orol.

Icahn's Men on the Inside

So Motorola cut to the chase, adding two Icahn representatives to its own slate: William Hambrecht, CEO of WR Hambrecht + Co., and Keith Meister, a managing director of Icahn's investment funds and principal executive officer of Icahn Enterprises.

The latter nomination, effective immediately, is a huge win for Icahn. When Icahn first tried to get Meister on the slate for last year's nominations, Motorola rejected the idea, telling investors that Institutional Shareholder Services, the proxy advisory firm, had once "questioned Meister's limited financial background." As recently as March, Motorola again refused to endorse Meister's nomination, prompting a sarcastic quip by Icahn about the company's plunging market value in his own letter to Motorola's shareholders: "What does one have to do to qualify—lose $37 billion dollars?"

The capitulation came less than two weeks after the ailing gearmaker had already caved in to Icahn's biggest demand: On Mar. 26, Motorola announced plans to split its business into two parts by spinning off its iconic but ailing mobile-phone business.

Investors applauded Icahn's victory, boosting Motorola's stock by 1.76%, to 9.84 a share. Yet in accepting defeat, Motorola has managed to dilute the leverage Icahn's representatives can wield. One of the two slots going to Icahn's representatives will be vacated by former CEO Ed Zander. But the other will be created by expanding the board's size from 13 to 14 rather than replacing another one of the existing directors. And as part of the deal, Icahn withdrew his lawsuits against the company.

Breakup Insurance

What will Icahn's victory mean for Motorola's future? For starters, with fewer distractions from lawsuits and proxy battles for board seats, management will be able to concentrate on righting the troubled business. "They are going to keep on the path they are on right now," says Eric Jackson, a money manager who represents "Motorola Plan B," a group of 135 individual investors, mostly former and current Motorola employees, who collectively hold 600,000 shares.

What Icahn's representatives will do now is see that company's breakup to completion. By gaining board seats, "Icahn just wants some assurance that they are going to go through with [the separation]," Orol says. When the plan was announced, Motorola hedged its words, stating that "there can be no assurance that any separation transaction will ultimately occur or, if one does occur, its terms or timing." So far, says Standard & Poor's analyst Todd Rosenbluth, "all we've heard is the [plan for a] spin-out." With no information about who will lead the phone business, what the terms of the spin-off will be, or when it might happen, "there are better alternatives" for investors, Rosenbluth says.

While global cell-phone sales are expected to increase 9% this year, Motorola's handset sales are forecast to fall by 3%, according to S&P. The company is expected to break even this year after losing $49 million in 2007.

Icahn might also push to accelerate the reported negotiations with rival equipment maker Nortel Networks (NT) to acquire or to create a joint venture with Motorola's cellular infrastructure business, says Mark McKechnie, an analyst with American Technology Research. "I've got to imagine Carl Icahn has got more up his sleeve than agreeing to a status quo and the current plan," he says.

Kharif is a senior writer for in Portland, Ore.

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Monday, April 07, 2008 Microsoft and Yahoo! Make Perfect Match

Cross-post from

04/07/08 - 09:44 AM EDT

I've been involved in an activist campaign aimed at increasing shareholder value at Yahoo!(YHOO - Cramer's Take - Stockpickr) for the last 15 months. When I started, I hoped that some swift action on the part of Yahoo!'s management and board would help the Internet pioneer make better use of its brand and traffic to deliver superior returns for its shareholders.

However, it took Microsoft's(MSFT - Cramer's Take - Stockpickr) 62% premium offer, not the bold moves of Yahoo!, to finally unlock that value. (From Jan. 5, 2007, when I launched my activism, to the day Microsoft announced its bid, Yahoo!'s delivered a +11.27% return vs. -4.59% for the S&P.)

The deal on the table from Microsoft is a good one for Yahoo! shareholders (although we'd like better). It's certainly better than the prospect of an independent Yahoo! or a shotgun marriage with Time Warner's(TWX - Cramer's Take - Stockpickr) AOL or News Corp's(NWS - Cramer's Take - Stockpickr) MySpace. That's a recipe for a quick return to a sub-$20 stock price.

Yahoo!'s stock price would likely sink a lot more than that if Microsoft walked away from its offer (as some rumors Friday suggested it might). From Feb. 1 to April 4, Google's(GOOG - Cramer's Take - Stockpickr) stock is down over 16%. If Microsoft's deal had never come to pass, Yahoo!'s stock would likely have gone down just as much, if not more, meaning it would be around $16.
There appears to be consensus among the other Yahoo! shareholders I've spoken with that $31 a share is better than $16.

Most press coverage of this takeover drama has failed to observe that this is also a very good deal for Microsoft and its shareholders -- and it still would be, even if they upped the price a few more dollars (still a likely possibility, despite Steve Ballmer's letter over the weekend that he was going to launch a proxy fight in three weeks if there was continued silence from Sunnyvale).

Several Microsoft shareholders have groused about buying Yahoo! They worry that the price is too high, it forces Microsoft to issue debt, it uses up its cash, and the integration risks are plentiful. One analyst chuckled after the deal was announced that Google co-founders ""Sergey and Larry are going to have no problems sleeping" thinking about the combination of Yahoo! and Microsoft.

Microsoft actually was the target of shareholder discontent in 2006. It never coalesced into an organized activist effort, but many -- like Joe Rosenberg, Chief Investment Officer of Loews Corporation voiced complaints. There was $35 billion in cash sitting on the balance sheet, with another $10 billion in invested securities. The stock had gone sideways since 1998 and Xbox seemed like a sinkhole.

However, from May 2006 until just prior to the Yahoo! deal being announced, Microsoft was up 35% vs. about 2% for the S&P. It's still 15 points ahead of the S&P, even after the pull-back in the last two months relating to worries about the Yahoo! deal.

Microsoft has operated well in the last two years. They also upped their dividend, delivered Windows Vista, and nobody has used the word "sinkhole" since hearing about a game called "Halo 3" for the Xbox.

But Rosenberg's still not happy, at least not with Ballmer or this deal for Yahoo! He said recently: "It's a bad reflection on Ballmer that he's willing to pay a ridiculous price for Yahoo! Microsoft is not going to earn anything like a reasonable rate of return on its investment in Yahoo! It just doesn't make sense." He went on to ask: "Can you think of a major tech deal that ever worked out?"

Of course there have been major tech deals that have achieved greater scale, with cost savings. There's no reason that the technology industry can't consolidate, with the acquirer getting more customers at lower costs like any other industry, as Larry Ellison has shown for the last five years at Oracle.

Yahoo! will bring many benefits to Microsoft. Despite all the investments Microsoft has made since the mid-90s, its Online Services Division is still the company's ugly duckling in terms of size and profitability. In the most recent quarter, its revenue was $863 million -- far behind any other division -- and it lost $245 million (more than twice the previous year). Yahoo!'s most recent quarter logged revenue of $1.83 billion with $191 million in operating income. (Google, by the way, did $4.83 billion with $1.44 billion in operating income.)

Microsoft can do three things with its Online Services Division: (1) shut it down, (2) incrementally hire engineers to close the gap with Google, or (3) make a bold acquisition to get bigger and faster.

This market is too big and strategically important to the rest of Microsoft to cede to Google. The Microsoft shareholders who are unhappy with this deal want them to pursue option 2. Microsoft loves hiring engineers, but it can't give the division another 13 years to catch up. They have to close the gap with Google and they know it.

With a united Yahoo!/Microsoft, the Online Services Division jumps to $2.7 billion in annual revenue and can be a heck of a lot more profitable. Yahoo! has a lot of great assets and engineers, but it's not known for operational excellence and right-sizing the organization. There are many great people for Microsoft to keep, but many who can go.

Microsoft can answer its critics by saying their former cash hoard will be gone when this deal gets done and they will be in a much stronger position to compete in a significantly large and growing space. Their ability to carry top-grade debt is unquestionable, and Yahoo! will bring significant growth opportunities that Microsoft wouldn't otherwise have.

Microsoft critics mistakenly think this deal is only about beefing up the weak sister Online Services Division. It's not. This deal is about protecting the central nervous system of Microsoft itself: Windows and Office. That's because Web services are the new versions of Windows and Office.

The world is moving to something called Software as a Service, where your software lives on the Web, not your desktop. Google Docs is a slimmed down version of Office. There's a free version and a pay version of the software, both with personalized ads to supplement Google's revenue stream. Few of us use Google Docs today but that might be different in 5 years. TechCrunch recently pegged Google Docs revenue for last year at $400 million (2% to 3% of Google's total revenue and 10 times the size of the previous year's Google Docs revenue). Microsoft can hang on to it core business for as long as it can hoping the world won't change or it can start preparing now for the possible day when software lives on the Web, combating what Clay Christensen calls the Innovator's Dilemma. Sometimes, the best defense is a good offense. Yahoo! allows Microsoft to be stronger in search against Google and, more importantly, stronger in Web services.

Rosenberg and others are right to suggest that big acquisition integrations can fail but they can also certainly succeed, if done right. The smartest people at Yahoo! will see this deal as a chance to work with even smarter people, with more opportunities in front of them, more resources behind them, and fewer managerial distractions around them.

And, what about Sergey and Larry not losing any sleep? Google is clearly still in a dominant position in search. However, I don't think Eric Schmidt would be complaining that Microsoft and Yahoo! together are going to "break the Internet," if they weren't concerned.

Microsoft has to get its Online Services Division to perform now; just as they did with Xbox back in 2006. If they do, as they should with the help of Yahoo!, there will be no need for shareholder activists to target Redmond.

At the time of publication, Jackson was long YHOO.

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Friday, April 04, 2008

Communicating with GeoEye

This morning, I had the opportunity to speak with GeoEye management for about an hour about my previously expressed points as a shareholder about what could and should be done to increase shareholder value.

I do not want to disclose the contents of the conversation, but I was pleased with their willingness to talk and their openness to the ideas put forward.

Actions speak louder than words, of course. Shareholders will only be happy when the price starts to go up again, but I am confident they will implement some of the ideas we discussed.

I will be watching, but I was heartened by the conversation and am glad the 10K is now out and we can look forward to continued strong performance in the coming months.

This is a dominant company in a fast-growing industry that will only be more important to commercial and government customers in the years to come.

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Wednesday, April 02, 2008

GeoEye Files Its 10K with the SEC: Lifting the Cloud

After close today, GeoEye (GEOY) released its 10K, which is located here.

The bottom line is that they have clarified the NOL tax issue with the IRS and it is not all that significant. They did restate their net earnings from 3Q07 (and for Q1 - Q307 as a whole).

Fully diluted EPS for 3Q07 is now $2.20 instead of $2.67 (a 17.6% decrease). Fully diluted EPS for the first 3 quarters of 07 is now $1.87 instead of $2.38 (a 21.4% decrease).

All these do not obviously affect operating performance. GeoEye states that it is still going to press the matter "vigorously" about whether this conservative treatment is in fact warranted.

In the meantime, for shareholders, this news will be welcome to turn the page on the uncertainty hanging over the company since the last earnings call which, otherwise, had some very strong news.

Now, we look to GeoEye-1's successful launch: scheduled for August but hopefully sooner.

In the meantime, I will continue to press my previous points to management and the board.

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IR Magazine: Motorola investors victorious

From IR Magazine:

Apr 02, 2008

Activists trigger company split

ILLINOIS -- After seeking a more independently led mobile division for nearly a year, activist shareholders have finally succeeded: Motorola will split off its mobile devices group.

Billionaire Carl Icahn has been demanding company reform since his proxy battle for a seat on the board was defeated last year. But Motorola’s second-largest shareholder has not been the only catalyst for the recently planned break-up.

Smaller activist investors have also pressured the company. Eric Jackson of Ironfire Capital, an activist hedge fund, has demanded change since last summer through his blog ‘Plan B for Motorola’. Its following of 600,000 pledged shares has seen some demands realized.

‘One of the Plan B criticisms was that Motorola had not hired a head for the mobile devices group, an omission the company remedied a week after the plan first came out,’ Jackson says. But Motorola’s CEO Greg Brown got rid of the new position earlier this year when he replaced Ed Zander, whose ousting was also proposed in Plan B.

Motorola has not introduced new members to the bored or outlined a long-term vision and strategy for the company, two issues dear to Plan B’s heart. But Jackson thinks it is very likely Icahn will get four seats on the board this year due to continued poor performance and decreased confidence in company management.

By Taylor Swinney

Sphere: Related Content New York Times Catches Activists' Softer Pitch

From this morning's

04/02/08 - 06:44 AM EDT

Wasn't it only five months ago that Morgan Stanley (MS - Cramer's Take - Stockpickr) fund manager Hassan Elmasry threw in the towel on his 7.2% stake in the New York Times (NYT - Cramer's Take - Stockpickr)? After months of protracted activism, confrontation and negotiation, one of the Times' staunchest critics decided that his battle to improve the performance of the newspaper was futile.

So, how is it that only a few weeks later two hedge funds not only acquired a sizable stake in the Times but also ran a successful campaign to get elected to the board, with the newspaper announcing plans to add two new seats for representatives from the two funds?

Why did one activist approach aimed at the New York Times meet such failure while the other proved successful?

The answer, in part: how and when you conduct an activist campaign can be critical determinants of your success.

The Hard Tack

Easily more than 80% of the people I meet who hear I run an activist fund assume that an activist, by definition, is confrontational, negative and bullying. Carl Icahn certainly has an aggressive style of engaging management, and it's worked for him over his career.

Most activists take this hard-line approach and so did Morgan Stanley's Elmasry with the Times. Through a series of letters and meetings lasting over a year, Elmasry criticized the newspaper for its new headquarters, poor acquisitions, poor choice of executive editor, and -- most offensive to him -- the Times' sacrosanct two-tier share class structure.

He withheld votes for the Times' board in protest in 2006 and then again in 2007. Forty-two percent of his fellow shareholders joined him in last year's vote. But, nothing really changed.
At the end of the day, the Sulzberger and Ochs families retained control of the board, the share structure and the company. Elmasry retreated. Activism had failed.

Yet, it was a pyrrhic victory for the Times' owners. From the stock's peak in June 2002 until mid-January of this year, the families' value in the newspaper -- along with other shareholders -- dropped more than 70%.

Some Elmasry critics would say he was wrong to target improving the newspaper industry. After all, Bruce Sherman of Private Capital Management had recently tried activism at Knight-Ridder. But, because of rapidly declining revenue, the company had little success and was forced to sell out to competing media outlet McClatchey.

Many activists choose to steer clear entirely from companies with a majority-owner or dual-class structures like the Times. After all, so this thinking goes, you can have the best plans for change, but you will never have any leverage over that majority owner.

Yet, on March 17, the New York Times announced that Harbinger Capital Partners and Firebrand Partners would get two director seats on the board -- less than two months after the hedge funds first disclosed their stakes and started calling for change. How could capitulation come so quickly for so difficult a target?

The overly simplistic answer is that Harbinger and Firebrand were nice whereas Morgan Stanley was too aggressive.

Softer, Gentler Activism

Far from Icahn's dog-on-a-bone approach, Firebrand's Scott Galloway believes you catch more bees with honey when pushing companies to change. In his first letter to the Times' Chair, Arthur Sulzberger Jr., and CEO Janet Robinson, Galloway said: "There is nothing wrong with the New York Times Company that cannot be fixed with what is right with the New York Times."

As a recent Portfolio profile of Galloway described, he learned about activism after being tossed off the board of a company he founded, RedEnvelope (REDE - Cramer's Take - Stockpickr). After a failed attempt to get back on the board a year later via a negative proxy battle, he took a conciliatory approach the following year and was successful. He's kept smiling as an activist ever since, using this approach at the Sharper Image (SHRPQ - Cramer's Take - Stockpickr), Harvey Electronics (HRVE - Cramer's Take - Stockpickr) and Gateway Computer (with mixed success).
In this contest, although Harbinger and Firebrand urged the Times to sell off non-core assets such as its stake in the Boston Red Sox and work harder at making a success of their digital media efforts, they respected the families' desire to retain the current share structure.

Such politeness leading to success is at odds with the Conference Board's recent study on activism, which declared that hostile activists were typically 25% more successful in achieving their aims than non-hostile activists.

However, Harbinger and Firebrand didn't succeed because they spoke in soothing tones to Arthur Sulzberger Jr. (although I'm sure it helped). Here are five reasons Harbinger/Firebrand succeeded where Morgan Stanley failed:

  • They spoke softly and carried a big stick: a 20% stake in the Times. This was three times the size of Elmasry's stake. It would have been more difficult for Sulzberger Jr. to argue they were a small minority (read: crackpot) shareholder voice.
  • The Times stock surged in the weeks following disclosure of the Harbinger/Firebrand stake. From Jan. 25, when their stake was made public, to today, the Times' stock price is up 35%. The market was voting with these activists before it could come to a vote at the annual meeting, and the board knew it.
  • Fool me once, shame on you; fool me twice, shame on me. No activist gets a free ride when making its case in a proxy battle or withhold vote. Sometimes, as happened last year when Carl Icahn failed to get elected to the Motorola (MOT - Cramer's Take - Stockpickr) board, shareholders give management the benefit of the doubt. Yet management better perform. Motorola didn't this past year (which is why Icahn's in the driver's seat to get his four nominees elected at this year's meeting) and neither had the Times, until these latest activists emerged. Again, the Times' board could have read the writing on the wall and decided a negotiated settlement with the activist funds, conceding two board seats, was better than the risk of them getting all four elected.
  • A more difficult argument to refute this time around. Last year, shareholders were asked by Elmasry to support removing the dual-class structure. The Times pointed to how nearly all successful media companies had it. This time, the activists were essentially arguing for the company to sell its noncore assets. How could the Times run a campaign saying, "No, we strategically need to hold our stake in the Red Sox to more successfully compete in our market and defend our journalistic integrity"?
  • Outside activist hedge funds are better able to lead an activist campaign than insider institutional managers with conflicting ties. Elmasry was leading the charge against the Times as a Morgan Stanley employee. Despite tacit support from the investment bank, it was clear that not all of his fellow employees were happy. The Times exploited this weakness when the Sulzberger-Ochs family decided to pull its assets under management from the custody of Morgan Stanley. Outside activist hedge funds face no conflicts of interest like this typically and can therefore speak with a stronger voice. Elmasry would have been better off following Harbinger with his aims vs. leading the charge.
Some observers, like Fortune's Devin Leonard, claim Sulzberger Jr. was the winner in getting the hedge funds to agree to only two directorships. This keep-your-friends-close-and-your-enemies-closer argument is that Harbinger/Firebrand will be neutered from criticizing the company now that they are essentially part of the company.

I completely disagree. The country club friendliness of the Times board is most certainly going to change by having these activists in their midst. Tough questions will be asked and have to be answered. The fact that these activists got two seats is also significant: one can always second the motion of the other and have it recognized in the meeting minutes.

However, the activists would do well to remember that their success is not defined by getting on the Times' board of directors but in earning a return on their investment. So far, so good on both fronts. But, in now being on the board, it's clear Harbinger/Firebrand won't be selling their stakes anytime soon (without driving down the price).

Can they turn around the trajectory of the Times in a way that Sherman at Knight-Ridder and many other newspaper owners haven't yet been successful in doing? Keep reading.

At the time of publication, Jackson was long Motorola.

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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