By Elise AckermanMercury News
Article Launched: 07/31/2008 05:43:19 PM PDT
After successfully fending off takeover attempts by Microsoft and billionaire Carl Icahn, Yahoo Chief Executive Jerry Yang could face a new group of critics Friday: Mom and pop shareholders.
For months, Yang has taken a beating for turning down Microsoft's offer to buy Yahoo for $33 per share. Institutional investors took the unusual step of scolding Yang in the press, while Icahn released withering tirades in the hope of unseating Yang at the annual meeting, which will be held Friday morning in San Jose at the Fairmont.
Yang reached a settlement with Icahn. But there could still be high drama, as small shareholders take advantage of their one and only chance to directly address Yang and his management team.
"Since all the votes have been cast before the meeting, all that's really left is the theater," said Gary Lutin, an investment banker who conducts shareholder forum programs.
While Yahoo's management personally reached out to big institutional investors during the proxy battle with Icahn, individual stock holders were left to read about the takeover fight in the media. A small but vocal group, individuals collectively own about a 10 percent stake in Yahoo. Traditionally, the annual meeting has provided them an opportunity to have their voices heard.
"I want to hold this board and management team accountable for the last year," said Eric Jackson, who founded his own investment firm, Ironfire Capital, after leading a grass-roots
protest last year that culminated with the resignation of Terry Semel, Yahoo's former chief executive.
Jackon, who flew in from Florida on Thursday, said there has been "scant improvement" in Yahoo's performance during the past 12 months. Indeed, the company has lost 26 percent of its value since the last annual meeting. Yahoo closed on Thursday at $19.89.
This year's meeting is expected to follow a traditional format: Yang will give a presentation about the state of Yahoo's business and shareholders will be given a final chance to vote their ballots as well as to step up to the microphone.
On that ballot are five proposals. Yahoo is asking shareholders to elect its nine nominees for the board, who are now unopposed, and to approve PricewaterhouseCoopers as the company's accounting firm.
In addition, Yahoo wants shareholders to vote against a proposal regarding pay-for-superior-performance that was submitted by the United Brotherhood of Carpenters Pension Fund, and to reject a proposal on Internet censorship that was submitted by the City of New York Office of the Comptroller and another regarding the establishment of a board committee on human rights.
One shareholder who won't be waiting for the mic is Carl Icahn. In a blog post Thursday morning, Icahn wrote: "It will not do shareholders or Yahoo any good to have the annual meeting turn into a media event for no purpose."
Icahn said he had met with Yang and Board Chairman Roy Bostock and while he still disagrees with them on many points, he said, "I have great hope 'this will be the beginning of a beautiful friendship."'
Under the terms of Icahn's settlement with Yahoo, the company will expand its board by two seats and appoint him as a director "no later than one business day" after the annual meeting.
One of Yahoo's directors, Robert Kotick, will resign and the board will then have two weeks to appoint two other directors from a list that includes Jonathan Miller, former chief executive of AOL, and Lucian A. Bebchuk, Frank J. Biondi, Jr., John H. Chapple, Mark Cuban, Adam Dell, Keith Meister, Edward H. Meyer, and Brian S. Posner, each of whom was on Icahn's slate of director nominees.
Thursday, July 31, 2008
By Elise AckermanMercury News
By MICHAEL LIEDTKE – 4 hours ago
SAN FRANCISCO (AP) — Yahoo Inc.'s recent truce with investor Carl Icahn didn't pacify many shareholders who remain on the war path heading into the Internet company's annual meeting Friday.
The slings and arrows are expected to include a significant number of votes opposing the re-election of the company's current board of directors and a fusillade of criticism.
Yahoo Chief Executive Jerry Yang, in particular, will probably get an earful after spurning a $47.5 billion takeover bid from Microsoft Corp. in early May.
Since Microsoft withdrew that offer, Yahoo's stock price has plunged 30 percent to leave the company's market value nearly $20 billion below what shareholders would have been paid if Yang and the rest of the board had accepted the bid.
"The Microsoft negotiations were just the latest example of the negligence by this board," said Eric Jackson, a Yahoo shareholder who plans to confront Yang during Friday's meeting. "There is still a lot of anger and frustration among shareholders right now."
Jackson, who represents a group of stockholders with about 3.2 million shares, made an impression at Yahoo's meeting last year when he ripped the performance of then-CEO Terry Semel. Just six days after that skewering, Semel stepped down as CEO and surrendered the reins to Yang, Yahoo's co-founder.
Yahoo shareholders were agitated even before the breakdown in Microsoft talks because the company's profits and stock have been sinking for several years, despite an Internet advertising boom.
Since 2005, Yahoo has lost nearly half its market value. Meanwhile, the stock of rival Google Inc. has climbed 15 percent to create an additional $20 billion in shareholder wealth.
Yahoo shares fell 14 cents Thursday to $19.89, slightly above their price when Microsoft made its initial takeover bid six months ago.
Despite its struggles, Yahoo still has the support of many shareholders, including one of its largest, Legg Mason Capital Management Inc. The Baltimore-based investment firm, which owns a 4.4 percent stake in Yahoo, pledged its support for the current directors two weeks ago.
"We believe the board is independent and focused on value creation for long-term shareholders," Legg Mason Chairman Bill Miller said at the time.
If there's enough opposition Friday, Yahoo shareholder Mark Nelson thinks Yang may end his attempt to turn around the company that he and David Filo began 14 years ago.
"I haven't spoken to anyone who thinks, 'Hey, this is the right team to lead Yahoo,'" said Nelson, a partner at Mithras Capital, which owns 1.7 million Yahoo shares. "I hope there will be enough shareholder pressure at this meeting for the board to realize they need to bring in someone else to run the company."
Icahn, a blunt billionaire who will join Yahoo's board next week as part of his compromise with the company, already has said Yang, 39, should be cast aside for a more seasoned CEO. That idea may get more support when two Icahn allies join the Yahoo board by Aug. 15. (Shareholders won't be able to vote on the merits of Icahn and his allies until next year's meeting. Friday's vote will be confined to Yahoo's incumbent board.)
Before he decided to work with Yahoo, Icahn had been campaigning to replace all nine of the company's directors with a slate of his own candidates. But he changed his mind in July after concluding he didn't have enough shareholder support to prevail.
Icahn remains highly motivated to boost Yahoo's stock price because he paid about $25 per share to acquire a 5 percent stake in the company. But he doesn't plan to show up at the annual meeting. And now he seems willing to give Yang more time to prove he has the chops to be CEO — although his peace pact with the company now prevents him from publicly disparaging Yang or other Yahoo directors.
"While we still disagree on many points, I have great hope 'this will be the beginning of a beautiful friendship,'" Icahn wrote on his blog Thursday.
To round out its board, Yahoo must choose two Icahn-endorsed candidates from a list of nine. Two of the choices have been mentioned as possible successors to Yang — former AOL CEO Jonathan Miller and former Viacom Inc. CEO Frank Biondi Jr.
But Yang still seems to believe he is the best man for the job.
"I am as excited as I have ever been to lead this company," Yang told The Associated Press on July 22. "We have a sense of urgency to create value." In his defense Friday, Yang is expected to highlight an advertising partnership with Google that is supposed to boost Yahoo's annual revenue by $800 million. That alliance still could be blocked by antitrust regulators.
Yang also thinks Yahoo can get better at selling ads on its own.
Add it all up, and Yang believes Yahoo's net revenue will climb from a projected $5.6 billion this year to more than $9 billion in 2010. Industry analysts are highly skeptical: They predict Yahoo's 2010 revenue will be just slightly above $7 billion.
Yang won't be alone on the firing line Friday.
Roy Bostock, who became Yahoo's chairman on the same day Microsoft made its initial bid, oversaw the failed negotiations that followed. Bostock also sits on a compensation committee that approved an employee severance plan that threatens to substantially increase the costs of a takeover.
Two shareholder advisory firms — Glass, Lewis & Co. and Proxy Governance — have recommended voting against Bostock as well as the two other directors on the compensation committee, Ron Burkle and Arthur Kern. However, RiskMetrics ISS, the most influential shareholder advisory firm, supports re-electing the entire board.
Under Yahoo's bylaws, a director opposed by a majority of shareholders is required to submit a letter to resignation. But that rule won't apply in this year's election because the incumbents are technically still running against Icahn's slate. That means the current directors just need to win a plurality of the votes.
In an attempt to placate investors, Yahoo might announce a special dividend or some other extraordinary measure, such as a spinoff of its Asian assets. Microsoft proposed both ideas in July when the software maker teamed with Icahn in an attempt to buy Yahoo's search engine and break up the rest of the business.
Juan Carlos Perez, IDG News Service
Yahoo CEO Jerry Yang will face a tough crowd at Friday's shareholders meeting, but the expected tongue-lashing is likely the least of his worries as he stares at the towering list of promises he has made and must fulfill.
Since replacing former CEO Terry Semel in mid-2007, Yang has been assuring employees, partners, external developers, publishers, advertisers and online-service consumers that he has a foolproof plan to get Yahoo back on track financially and technologically.
For shareholders, the problem with Yang's rhetoric is that when he took over from Semel, Yahoo's stock price was in the US$27 to $28 range. On Thursday, it closed at $19.89, far from the $33 per share Microsoft offered before negotiations collapsed in early May, and very close to the $19.18 price on Jan. 31, the day prior to the bid's announcement.
"There is a lot of anger and discontent among shareholders. It will be lively tomorrow," said IDC analyst Karsten Weide in a phone interview.
Activist investor Eric Jackson, president of Ironfire Capital, plans to attend and get vocal at San Jose's Fairmont Hotel, and is encouraging others to do the same. "[The meeting] will be an opportunity for us to speak up and make our voices heard. If you're in the Bay Area, I encourage you to come out ... Hopefully, we'll have a lively set of questions posed to the Yahoo board in a true direct fashion," Jackson wrote on his blog Monday.
While Friday's meeting will give shareholders a soapbox to vent frustrations, the event is also of significance to Yahoo end-users, advertisers, publishers, partners and developers who are trusting that Yang and his team will deliver the promised goods.
With Microsoft no longer circling the waters and having appeased Carl Icahn -- who wanted to kick out the entire board and boot Yang from the CEO throne -- Yahoo's management now has no excuse for the company's underperformance.
After all, at Friday's meeting, despite the likely sound and fury from the floor, the current board will retain a solid majority -- eight members -- as part of an agreement that grants seats to Icahn and two of his candidates. This leaves Yang and his team on much more solid job-security ground.
Or maybe not. Industry analyst Rob Enderle of Enderle Group wouldn't be surprised if top management changes are announced at the meeting or shortly afterward, involving either the replacement of Yang as CEO or the addition of a new executive in a prominent role, possibly former AOL CEO Jonathan Miller, a candidate for an Icahn seat.
The mere fact that Icahn will have a say in Yahoo's operations assures changes will be made to current plans and strategies, so people and organizations tied to Yahoo services would do well to pay attention to what transpires at the meeting, especially discussions about possibly changed plans and strategies, Enderle said.
After Microsoft made its bid, Yahoo went into a hyperactive mode with product and strategy announcements, seemingly to prove that it was worth more than Microsoft was willing to pay and also able to survive independently. It's likely that that list of projects will be pared down, according to Enderle. "I don't think they'll be able to execute on all of them," he said.
Probably the most ambitious project is Yahoo Open Strategy (Y OS), which promises end-users and developers alike a major revamping of how they will respectively use and develop applications for Yahoo online services. It's generally agreed that if the Y OS vision is fully realized, it could give Yahoo a significant and long-needed boost in key areas like search and social networking.
Announced in April to great fanfare, Y OS calls for Yahoo to open all its sites, online services and Web applications to outside developers, and give users a "social profile" dashboard to unify and manage their Yahoo services. To accomplish this, officials recognize that it will be necessary to rewire Yahoo's technology back-end inside and out -- no small feat.
"It's a cool, bold, visionary project, but it will be hard to do," Weide said. "The question is: Can Yahoo pull it off?"
Another big project in the works, this one aimed at advertisers, is AMP, a new advertising management platform that the company says will greatly simplify buying and selling ads online, and -- Yahoo promises -- provide laser-like ability to target audiences.
In June, when it announced its latest of several major reorganizations in the past two years, Yahoo shocked observers with the creation of a Cloud Computing and Data Infrastructure Group, which many have speculated is a sign Yahoo plans to get into the hosted software and IT infrastructure services markets.
In addition, Yahoo has ongoing projects to continually improve its mobile services, its franchise e-mail and instant messaging products, and Panama, its much-touted search advertising platform whose efficacy fell into doubt when Yahoo recently agreed to outsource part of its search ad business to Google in order to jump-start those segment revenues.
In addition, during Microsoft's pursuit, Yahoo also acquired online video player Maven Networks, announced its social network OneConnect mobile service, re-launched its video site and introduced social news site Yahoo Buzz.
So on Friday, while shareholders hurl verbal rotten tomatoes at Yang, President Sue Decker and the other top managers, end-users, developers, publishers and advertisers should be watching, looking for signs that their promises will be fulfilled.
July 31, 2008 4:00 AM PDT
Posted by Dawn Kawamoto
Believe in deja vu? Yahoo shareholders may when they file into the company's annual shareholders meeting on Friday.
Last year, an angry mob of investors took Yahoo's CEO to task at the company's annual shareholders meeting, citing the company's lackluster performance and the lucrative compensation awards. A week later, Yahoo CEO Terry Semel resigned from his executive post, passing the baton to company co-founder Jerry Yang.
Fast forward a year later and the situation is expected to markedly similar. When Yang takes the stage at the annual shareholders meeting, he'll likely face not only a sea of angry investors but one that will include some shareholders who are making a repeat appearance at the microphone to voice dismay.
But the tenor of this upcoming meeting is expected to be even more pitched, given that Yang and Yahoo's board rejected a $33 a share buyout bid from Microsoft in May and the stock has now roughly come full circle to where it was trading before Microsoft's initial bid of $31 a share in February.
Yahoo closed at $20.03 a share on Wednesday.
But beside the anticipated fury that is expected to unfurl at the meeting, what else may investors, employees, and Yahoo customers expect at this significant event for the Internet's search pioneer.
For starters, Yang will not be alone to fend off a potentially hostile crowd. Some, but not all, of Yahoo's current board members are expected to be in attendance, such as longtime director Eric Hippeau and newcomer Maggie Wilderotter.
Carl Icahn, the activist investor who launched a proxy fight to push Yahoo and Microsoft back to the table, nor his advisers, are likely to make an appearance at the meeting, after having reached a settlement with Yahoo last week.
Under that arrangement, Yahoo's current board of nine directors will be up for re-election to another one-year term. Based on the settlement agreement, it is anticipated that sometime between the shareholders meeting on Friday and the end of business Monday, Yahoo's director Robert Kotick will resign from the board and Icahn will be appointed to his seat. The board will also vote to expand its size to 11 members from nine.
While the settlement agreement also calls for the Yahoo board, which would then include Icahn, to fill the two newly added seats with two folks from Icahn's pool of candidates, don't expect those two new faces to be named at the shareholders meeting, said a source familiar with the company. Yahoo has until August 15 to fill those two positions.
During the meeting, Yang & Co. are expected to provide a presentation on the state of the company, in which a question-and-answer session will follow from the floor.
Investor activist Eric Jackson said he plans to make a return visit to the meeting and will once again make a case for his recommendation that investors withhold votes to re-elect certain Yahoo directors. Jackson is asking investors this year to withhold votes for compensation committee members Roy Bostock, Yahoo chairman, Arthur Kern and Ron Burkle, as well as
Hippeau, because of the length of time he has served on the board.
And while Jackson, along with advisory service to institutional investors Glass Lewis & Co. and Proxy Governance, have come out with recommendations to withhold votes or vote against several Yahoo directors, the effect will basically serve as a symbolic gesture to Yahoo's board on the level of investor dissatisfaction.
That's because the top vote-getters are the ones who will be elected to the available board seats, which means everyone will be re-elected in an uncontested race.
Nonetheless, the higher the percentage of votes cast that are marked with either "against" or "withhold," serves as barometer of investor discontent. Last year, Yahoo's board was re-elected with only 66 percent approval, whereas boards typically receive 80 percent to 90 percent of the votes cast.
And should any one director receive less than a simple majority of the votes cast, under Yahoo's bylaws they are required to automatically tender their resignation. But that too will unlikely lead to any director's ouster, given the board can vote to reject the resignation.
Yahoo, at the shareholders meeting, is expected to provide a 10,000-foot view on whether the directors received enough votes to be re-elected as a group, with the per director vote results to be released later, said one person familiar with the plans.
While the shareholders meeting is expected to bring a lot of one-day drama, keep an eye out for the ensuing two weeks as Yahoo's board undergoes a likely change in voice as Icahn and two members picked from his pool of candidates are added to Yahoo's board.
Verne Kopytoff, Chronicle Staff Writer
Thursday, July 31, 2008
(07-30) 20:31 PDT -- Yahoo Inc.'s annual shareholder meeting was on course to be a dramatic showdown with investor activist Carl Icahn until the two sides declared a last-minute truce in their battle for control of the Internet giant.
But the detente hardly means that the event, scheduled for Friday in San Jose, will be a lovefest.
Angry investors are eager to pummel Yahoo's leadership over the company's financial slump and its failure to accept a $47.5 billion takeover bid by Microsoft Corp, among other offers. Count on Yahoo CEO Jerry Yang and his fellow board members fielding some uncomfortable questions.
"You can still expect a heated debate," said Warren Chen, managing director of research for mergers and acquisitions at Glass Lewis & Co., a proxy advisory service in San Francisco.
For much of this year, Yahoo's board has faced withering criticism for its handling of the Microsoft courtship. Many investors considered a deal an antidote to the company's otherwise depressed share price.
Icahn, who has made a career of pressuring troubled businesses to do what he wants, eventually bought 5 percent of Yahoo's shares and launched an effort to replace its board with his own slate in what is known as a proxy contest. After a nasty campaign, during which he repeatedly accused management of bungling the Microsoft negotiations, Icahn settled the matter last week instead of taking it to a shareholder vote at Friday's meeting.
As part of the agreement, Icahn will join Yahoo's board. He also gets control of two other seats, which will be filled from a list of candidates he provided, by Aug. 15.
Eric Jackson, a longtime Yahoo critic who leads a group of investors who collectively own 3.2 million shares, said the settlement with Icahn doesn't get Yahoo's management off the hook.
"With Icahn and the noise of the proxy contest gone away, you could confuse that with it being all fine," he said. "People still place enormous blame on Yahoo for the breakdown of the talks with Microsoft."
Jackson, who runs the investment fund Ironfire Capital, said he plans to withhold his votes from four Yahoo board members to express his unhappiness with the company. Board members who don't get at least 50 percent of the vote for re-election must offer their resignations, although Yahoo doesn't have to accept them.
Brad Williams, a Yahoo spokesman, said about the prospect of pointed questions at Friday's meeting, "We are looking forward to having an open constructive dialogue with our shareholders."
Analysts expect Icahn to continue to pressure Yahoo's board to sell, although his three seats fall well short of a majority on the newly expanded 11-seat body. Whether Microsoft is still interested is unclear.
Icahn will have no official role at Friday's meeting, which will be held at the Fairmont San Jose hotel. There was no word on whether he will attend as a shareholder.
Although still profitable, Yahoo is struggling amid slowing growth and stiff competition with rival Google Inc. Yang has repeatedly tried to reassure investors by touting a three-year revival plan, which includes making Yahoo a must-buy for advertisers, although many analysts call the financial projections overly optimistic.
Signaling his willingness to make hard decisions, Yang agreed to outsource some of Yahoo's search engine advertising to Google. The deal, which is awaiting regulatory approval, is expected to bring in $800 million in extra annual revenue to Yahoo.
Yang, who co-founded Yahoo as a Stanford graduate student with David Filo in 1994, started his tenure as CEO last year following the departure of Hollywood veteran Terry Semel. Given the turmoil under his watch, Yang may be under pressure to resign within a year, according to some analysts and investors.
His challenge is to boost Yahoo's share price, which closed Wednesday at $20.03, to at least $33, the amount of Microsoft's last takeover offer.
David Larcker, accounting professor at the Stanford University Graduate School of Business and co-director of the Rock Center for Corporate Governance, said that even if Yahoo's leadership gets through the shareholder meeting unscathed, investors will turn up the pressure within the next year, absent any progress at the company.
"Investors were saying we'll go along with this for now, but if nothing positive happens in the next year or so, then sure, there will be tremendous pressure," he said.
E-mail Verne Kopytoff at email@example.com.
This article appeared on page C - 1 of the San Francisco Chronicle
Tuesday, July 29, 2008
Proxy Governance has announced this morning that it is advising institutional and pension fund clients to vote "against" the re-election of Roy Bostock, Ron Burkle, and Art Kern at this Friday's Yahoo! annual meeting.
I have previously spoken out against their re-election. I also have argued that Eric Hippeau should not be re-elected, based on the fact that he and Art Kern have served on this board for 12 years. In my opinion, they have ceased to be "independent" due to such length of tenure.
Here's an excerpt from the report:
We have concerns regarding the company's executive compensation, which is high compared to peers and given the company's financial performance relative to peers. Historically the company has relied heavily on equity incentive awards combined with relatively modest cash compensation. In 2006 equity grants played an even larger part than usual in senior executives' compensation packages. The board justified these grants by noting that the company began developing a new strategic plan and launched its new advertising system, Project Panama. Consequently, the Compensation Committee argued, it was imperative to ensure that current management remain with the company throughout the reorganization. It therefore approved performance and retention agreements with former Chairman/CEO T. Semel, former COO D. Rosenweig, CFO and Head of Advertiser and Publisher Group S. Decker and former CTO and Head of Technology F. Nazem. Under these arrangements, in 2006 each executive received a large grant of options, which would vest over periods ranging from two to four years.
The actual effectiveness of the grants is somewhat in doubt: Rosenweig resigned from the company in March 2007 and both Semel and Nazem resigned in June 2007. Under the terms of Rosenweig's separation agreement, the company accelerated the vesting of 600,000 options to the date of his separation, and will allow him to exercise those and certain other options (currently underwater) for an extended period of up to three years. Nazem's separation agreement provided similar accelerated vesting of all his option grants.
In 2007 option awards were more modest, ranging from $4.5 million to $1.3 million. Incoming CFO B. Jorgensen received 425,000 options valued at $4.1 million as part of his recruitment package, and S. Decker received 300,000 options valued at $3.1 million when she was promoted from CFO to president.
We note, however, that little of the reduction in executive pay is attributable to the Compensation Committee, which has announced no changes in its compensation philosophy such as performance-vesting criteria for equity awards and no plans to restructure
compensation in line with peers and company performance. CEO compensation dropped only because founder Yang, stepping in to replace Semel as CEO, accepted a purely nominal compensation of $1 per year. Among the other named executives, compensation
dropped largely because three of the four most highly-compensated executives left the company (in some cases taking portions of their retention grants with them); the fourth, Decker, again received a large equity grant on top of the previous year’s retention grants.
Given the company’s historically high executive compensation, the fact that high executive attrition rather than Compensation Committee restraint drove 2007 compensation lower, and the lack of changes in the company’s compensation strategy or practices which would keep compensation more in line with peers and performance, we recommend shareholders withhold votes from the three members of the Compensation Committee, R. Bostock, R. Burkle, and A. Kern, to signal their concern over the company’s compensation practices.
Monday, July 28, 2008
Friday's Yahoo! annual meeting for its shareholders will be an opportunity for us to speak up and make our voices heard.
If you're in the Bay Area, I encourage you to come out to the meeting at the Fairmont San Jose on Friday at 10am local time. (I will be traveling from the east coast to attend the meeting and know that several others are coming from long distances as well. Hopefully, we'll have a lively set of questions posed to the Yahoo! board in a true direct fashion since the titanic negotiations with Microsoft and also since Jerry Yang took over after last year's annual meeting.)
As I have said previously, I am "withholding" my votes for Roy Bostock, Ron Burkle, Art Kern, and Eric Hippeau. If more than 50% of my fellow shareholders do the same, those 4 men will have to submit their resignations (although Yahoo! could technically decline to accept them -- which would be highly unlikely because of the optics). I expect a Yahoo! board to be a better one without them than with them (although Yahoo! would be granted the right to select their successors -- hopefully only after much discussion with existing shareholders).
This morning, there was a story that at least one large YHOO shareholder was going to also vote "against" Jerry Yang. I can understand this sentiment. On a day when Yahoo! closed just shy of the ignominious price of $19, shareholders are understandably upset that CEO Yang couldn't close a deal to get 62% more than that a few weeks ago. In my opinion, Yang deserves a high "against" vote, but I hope he doesn't achieve the 50% mark because -- despite his failings this past year as CEO -- the company is better off with him on the board than without (in my opinion).
What about the Icahn nominees to the board?
We still don't know who 2 of these 3 people will be. The Yahoo! shareholders should have had the opportunity to vote on these nominees at this year's meeting. Instead, we'll have to wait a full year to vote.
However, this injustice is actually an opportunity. I hope that Yahoo! shareholders (large and small) will speak up in these last few days before Friday's meeting (and at Friday's meeting during the Q&A session) about their preferences for who should fill those slots.
Before the Yang-Icahn detente was struck, I had advocated a compromise solution in which I threw my support behind the election of John Chapple, Edward Meyer, Adam Dell, and Lucian Bebchuk. As part of the Icahn agreement, Carl himself will fill one of the 3 slots. Two are left open.
Jonathan Miller is rumored to be under consideration for one of those slots. He is an excellent choice and I would support him. Yet, he's still not thrown his hat in the ring.
If he passes on the chance to try and sort out this dysfunctional board from the inside, I would hope to see Chapple and Bebchuk elected.
Chapple (as Kara Swisher has said) has big business experience and wireless experience -- maybe he can sort out Yahoo! GO and help the company be successful in the perpetually burgeoning mobile wireless space. He also certainly knows how to sell out at the top. We'll see if he can help Yahoo! sell out when it's been round-tripped back to $19.
I also like Bebchuk and said so very early on. He's one of the best regarded academics on the issue of misaligned executive compensation and corporate performance. If you're going to try and cure Yahoo! of this affliction, why not send in the corporate equivalent of Doctors Without Borders?
We shouldn't be sitting back as shareholders waiting for Yahoo! to tell us who they -- in their infinite $19/share wisdom -- have deigned to select. Let's speak up and state who should be governing our company.
Saturday, July 26, 2008
Eric Jackson takes up the role of small-investor activist.
Published 8/1/2008 in Florida Trend
by Mike Vogel
The emergence of a phenom is usually associated with an individual moment. In the case of Eric Jackson, online shareholder activist, his moment came with Yahoo on a Sunday morning a few days after New Year’s Day 2007 in the guest bedroom of a condo he rents overlooking the Gulf north of Naples.
Staring into a $30 webcam he bought at Office Depot, Jackson videoed his case against Yahoo’s management in a seven-minute and 33-second speech that was as crisp as the part in his hair. He rose early on that Sunday so that he could make the video while his wife was still asleep; he was self-conscious about doing it in front of her.
Jackson, who owned all of 45 Yahoo shares, certainly picked the right moment — and not just to avoid his wife’s eye. His viral campaign against Yahoo, launched when he posted his video on YouTube, fed into the online and business news zeitgeist and transformed him from an unread blogger to a minor media figure with his own investment fund.
Jackson, 36, a Toronto native, got his start out of college at his father’s business, Jackson Leadership, a Toronto-based consulting firm that advises companies on succession planning, building management teams and so on. Going on to Columbia University for a doctorate in business, he and professor Donald Hambrick wrote one of the first studies of whether corporate “good governance” ideas correlated with better performance. (They found that only one mattered: Whether board members made significant purchases of their own company’s stock.) Along the way, Jackson took an interest in activist investment firms and the Carl Icahns of the world.
Jackson is “very sharp, intellectually vibrant” and interested in application more than theory, says Hambrick. In 2000, Jackson went on to become an executive with a Toronto tech startup, VoiceGenie, then rejoined his father in 2004. Two years later, Jackson, now president of the firm, moved his family to Naples.
To help his consulting business, he started a blog, breakoutperformance.blogspot.com. It drew only a couple of readers a day, but Jackson knew he was on to something in 2006 when that number jumped to 1,000 after he offered an opinion on Yahoo. He studied the company and decided it was ripe for improvement through activism. But he lacked Icahn’s money and name recognition, along with the institutional investors who can assemble the 1% to 10% of a company’s shares it typically takes to get leverage on a target. Armed with his idea of online, mass activism, he bought his webcam and 45 shares and hit the internet.
Jackson mounted his campaign as Yahoo ran up a series of poor quarterly results and missed opportunities while Google was making gains. It also came just over a year before Microsoft made public its bid for the company and almost a year and a half before word got out that Carl Icahn was buying up shares and proposing his own board slate.
Unlike disgruntled shareholders who grouse on message boards, Jackson offered a vision he named “Plan B” and allowed shareholders to pledge their support. He utilized YouTube, his blog, Wikia and YouChoose.net, a Thornton, Pa., startup that contacted him and suggested he use its site to gather results. His campaign, with 148 people pledging, would make it the fourth-most popular, as measured by number of signers, in YouChoose’s business category. (The overall winner, with more than 23,000 signers, is a campaign to get the TV show “Supernatural” renewed for a fourth season.)
A symbiotic relationship with the media followed. He appeared on CNBC with Maria Bartiromo, Fox’s Neil Cavuto and on the “CBS Evening News” and attracted coverage in the Wall Street Journal, the New York Times and elsewhere. In Jackson, the talking heads found an articulate shareholder, speaking earnestly about being constructive but with the wit to describe a particular board decision as “Ya-hubris.” Jackson was quite willing to accommodate their needs, even driving to Fort Lauderdale for a studio link to New York.
Jackson also telephoned large institutional shareholders for support. At least one, though not for public attribution, says Jackson is a “real advocate for shareholders.” The proxy voting advice service ISS/RiskMetrics included coverage of Jackson’s plan in its briefing report for Yahoo stockholders. By the time he flew to San Francisco for Yahoo’s 2007 annual meeting, he could claim 2.1 million in pledged shares behind him — two-tenths of 1% of Yahoo’s shares.
In the Q&A session with investors, Jackson had a public dustup with Yahoo CEO Terry Semel. Six days later, Semel was out. His compensation had been criticized, and board members up for re-election had gotten relatively little support in the proxy voting. Jackson sees cause and effect: “I was the outspoken shareholder.”
Yahoo was under stress from many directions. Still, Jackson “was a significant part of the pressure,” says Charles Elson, a University of Delaware professor and authority on corporate governance who has known Jackson since Jackson’s Columbia days.
Eager to show that his Yahoo gambit wasn’t a fluke, Jackson bought 130 Motorola shares and launched a second, less successful campaign. Among the user comments on wsj.com’s coverage is this exchange: “He’s simply a self-promoting wind bag. 130 shares? When he gets to 13,000 maybe he earns the right to feign interest in turning Motorola around,” wrote a user named Cato. Responded a user named Steve: “Self-promoting? Yes, but nonetheless, 1 share gives you a voice, and if his motives are genuine, then it is a good thing.”
Jackson decided to start his own investment fund using a model he developed for identifying overlooked, undervalued small companies. He raised “under $10 million” from family and friends and in February founded Ironfire Capital out of his Naples condo. In an interview on the veranda of the condo beach club, Jackson comes across as far from egomaniacal. Tall, he’s more animated and funnier than the reserved talking head of his YouTube postings.
Jackson says he’ll use activism to push his picks along. “At the end of the day, I’m still a guy who’s going to use the web,” he says. He’s made only two of his first 14 picks public: Barnwell Industries, a Honolulu hodgepodge of businesses that gets most of its revenue from a Canadian oil and gas operation, and GeoEye, a Dulles, Va., space satellite company. Executives at both companies, and Yahoo and Motorola, didn’t respond to requests for comment or declined to comment.
Neither small company is likely to generate the media interest to which he’s become accustomed. “If no one pays attention from CNBC, that’s fine,” Jackson says. “I’m not doing Ironfire to be in the press. I’m doing it to make money for the people who invest.”
Jackson reckons his whole Yahoo campaign — the webcam, plane tickets and hotel for the annual meeting — came to just $2,000. Given the low cost, the ease of online tools and virtual organization, Jackson likely is a pioneer in a field experts expect to grow. Says Jackson’s academic mentor Hambrick, now at Penn State University, “The whole issue of viral and grass-roots influence in all facets of social and economic life is going to mount, and woe be unto the big guys who don’t understand that.”
Tuesday, July 22, 2008
BNN speaks with Eric Jackson, Yahoo shareholer and founder, Ironfire Capital, about the Yahoo-Icahn truce.
The clip starts at 16:00 in:
Monday, July 21, 2008
Today's news that Yahoo! and Carl Icahn have reached a truce is good news for Mr. Icahn (who was facing long odds after he wasn't able to convince enough large shareholders that he had an operational plan for the company). It's also good news for Yahoo!'s incumbent Board which has been under fire from its own shareholders since Microsoft walked away from its generous buyout offer on May 3rd.
But is this truce good news for Yahoo! shareholders? No. It simply doesn't go far enough.
Yahoo!'s board has been dysfunctional for too long. More changes are needed, which is why I will vote "against" the re-election of Roy Bostock, Ron Burkle, Art Kern, and Eric Hippeau at next week's annual meeting.
Carl Icahn speaks for his 4% of Yahoo! he owns. He might speak for other shareholders like Boone Pickens, John Paulson, and Dan Loeb. But all Yahoo! shareholders -- large and small -- will get their chance to express their views next week.
Why I'm Voting "Against" Bostock, Burkle, Kern, and Hippeau:
- Yahoo!'s stock price is at the same level it was 4 years ago. That's a zero % return for loyal shareholders, while the market has gone up and their largest competitor has soared.
- Excessive compensation continues to persist at Yahoo! Last year, the focus was on Yahoo!'s CEO compensation and how it ranked among the highest for Fortune 500 companies, even as the stock had dropped 30% that year. Jerry Yang has agreed to be paid $1 a year since he took over as CEO, yet Yahoo!'s Compensation Committee has continued to pay its outside directors approximately $500,000 per year. Google's outside directors on average receive pay of $250,000 per year.
- Last year, Yahoo! shareholders voted 34 - 36% against the re-election of Messrs. Bostock, Burkle, and Kern (the members of Yahoo!'s Compensation Committee). To put that vote in perspective, remember that Michael Eisner (the year he battled Roy Disney) received 42% of votes cast against his re-election. Yahoo! chose to ignore the will of shareholders and keep all 3 men on. Based on what's occured in these past 12 months, I believe that choice was unwise.
- Kern and Hippeau have served on this board for 12 years. That's too long. It would be next to impossible for anyone to remain "independent" after serving on a group for so long. There are other voices with experience on this board.
- The breakdown in talks with Microsoft still baffles shareholders. The visceral outrage all Yahoo! shareholders felt when discussions broke down with Microsoft on May 3rd still leaves a bad taste in all our mouths as shareholders. This board claims Microsoft never was serious in its buyout offer for the entire company. Yet, they chose not to engage in discussions with Microsoft for 5 weeks after the offer was made - instead, scurrying around to approve a lavish severance package so as to increase the costs to Microsoft of completing the acquisition.
Yahoo! shareholders deserve better than the track record of this board in the last 4 years. Putting 3 new faces on this board is an improvement to the status quo, but we have to power as shareholders to remake this board so that it never again repeats these many mistakes.
I plan to vote "against" Bostock, Burkle, Kern, and Hippeau. By doing so, I believe I will be voting "for" a better Yahoo! board which will lead to better shareholder returns.Sphere: Related Content
TORONTO/NAPLES, July 21, 2008 – Activist investor Eric Jackson, founder of activist hedge fund Ironfire Capital, announced his recommendation that Yahoo! shareholders supporting his “Yahoo Plan B” group elect a mixed Yahoo/Icahn board at the upcoming Yahoo! Annual Meeting on August 1st.
Dr. Jackson is speaking on behalf of the "Yahoo Plan B" group, comprised of 150 members that own 3.2 million shares in Yahoo! worth over $70 million (http://www.youchoose.net/yahoo ). The “Plan B” group is the first group of shareholders assembled entirely via the Internet with the purpose of positively impacting a company’s governance and performance in a similar fashion to a large activist hedge fund.
Last year, Jackson used blog posts, YouTube videos, and other social media to rally support and positively effect change at Yahoo! His group created a “Plan B” for how Yahoo! should be run after finalizing it through a wiki (http://shareowneractivism.wikia.com/wiki/Yahoo ). The group also encouraged other shareholders to “withhold” their votes for key directors at the Yahoo! June 2007 Annual Meeting to protest the poor performance of the company combined with high executive compensation. At last year’s annual meeting, Yahoo! shareholders voted 33% against the re-election of 3 Yahoo! directors. Six days after the vote, former Chairman and CEO Terry Semel resigned.
Jackson will be announcing more details of his recommendations for how the “Yahoo! Plan B” group members should vote at this year’s Yahoo! meeting later today with the launch of a Yahoo! shareholder community at http://www.agoracom.com/ir/YHOO . Fellow shareholders can express their perspectives on how best to vote in the upcoming proxy contest at this HUB.
"While I have personally supported Carl Icahn's efforts since he announced he was running his slate to counter the Yahoo! board's poor oversight of the company over the last 4 years, it’s become clear over the last two weeks that many shareholders are reluctant to support the entire list of Icahn nominees. Many were concerned about a lack of an articulated operational plan for how to best run Yahoo! assuming no deal with Microsoft occurs imminently. There were also concerns about continuity with replacing the entire board. We also do not want to see Yahoo!’s poison pill-like severance package triggered by the election of 5 or more of Icahn’s nominees. As such, we are recommending that our group members vote for a mixed board with 5 re-elected Yahoo directors and 4 new directors from Icahn's slate. This will maximize the change so desperately needed to Yahoo!’s board without the drawbacks mentioned above.
“We believe Microsoft needs Yahoo! to reinvigorate its Online Services Division and protect its Desktop software business from future threats, as their quarterly results from last week demonstrate. There is a perfect fit here for Microsoft. We are confident this new hybrid Yahoo! board can effectively conclude a deal with them as representatives of the shareholders.
“This recommendation should in no way be interpreted as satisfaction with the current Yahoo! board. Yahoo! has been in decline for 4 years now, while this board has sat back and watched – only showing great involvement when taking time to approve extravagant pay packages or furiously writing tit-for-tat letters in the past 2 months. They sat back for 5 weeks and did not engage with Microsoft after the February 1st buyout offer at a 62% premium; a move that seems very unwise in retrospect.
VOTING RECOMMENDATIONS – YAHOO NOMINEES
Dr. Jackson is recommending the re-election of the following current Yahoo board members:
- Vyomesh Joshi
- Robert Kotick
- Maggie Wilderotter
- Gary Wilson
- Jerry Yang
Jackson is recommending that members mark their Yahoo proxies with an "X" next to the option "Withhold authority to vote for any individual nominee(s) below" and then write in the numbers: 1, 2, 3, and 5. Those numbers correspond with voting against Messrs. Roy Bostock, Ronald Burke, Eric Hippeau, and Arthur Kern.“We hold these 4 directors most responsible for the breakdown in talks with Microsoft and past lavish executive compensation” stated Jackson. “It’s time for some new blood.”
VOTING RECOMMENDATIONS – ICAHN NOMINEES
Dr. Jackson is recommending the election of the following Icahn nominees:
- Adam Dell
- John Chapple
- Lucian Bebchuk
- Edward Meyer
Dr. Jackson concluded by stating “Yahoo's board has skilfully turned this proxy contest into a debate about Carl Icahn's ability to run the company, which we believe is a smoke-screen to distract shareholder attention from their abysmal track record overseeing this company. A leopard doesn't change his spots. Therefore, we feel strongly that new perspectives need to be introduced to this board to ensure future accountability to Yahoo! shareholders. We urge our "Yahoo Plan B" supporters to vote for this mixed board to accomplish that goal.”
About Eric Jackson
Eric Jackson is founder and Managing Member of Ironfire Capital LLC, an activist investment firm in Naples, FL. He received a Ph.D. in the Management Department at Columbia University Graduate School of Business in New York, with a specialization in Strategic Management.
About Ironfire Capital LLC
Ironfire Capital LLC (http://www.ironfirecapital.com/ ) is an equity long biased and event-driven activist investment firm. Ironfire was founded by Eric Jackson in 2007 after successful activist campaigns targeting Yahoo! and Motorola. Ironfire combines the power of activist investing, with proprietary analytics and utilizes Internet-based social networking tools to gather information and amplify the impact of current focus campaigns.
Eric Jackson, Ph.D.
Ironfire Capital LLC
jackson at ironfirecapital.com
Sunday, July 20, 2008
Sun Jul 20, 2008 10:01pm EDT
By Eric Auchard and Anupreeta Das
SAN FRANCISCO/NEW YORK, July 20 (Reuters) - A dissident shareholder will on Monday call on Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) to compromise and accept a mixed board of directors drawn from among company nominees and a rival slate backed by Carl Icahn.
Eric Jackson, founder of the activist hedge fund Ironfire Capital and leader of the grassroots shareholder group Yahoo Plan B, said on Sunday he would encourage his loose-knit group to elect five Yahoo directors and four Icahn nominees.
"It's become clear over the last two weeks that many shareholders are reluctant to support the entire list of Icahn nominees," Jackson said in a statement to be issued on Monday.
The 'Plan B' group is made up of 150 Yahoo stockholders representing 3.2 million Yahoo shares. Members of the Web-based activist group of small shareholders vote individually rather than as a group, Jackson said.
Separately, a source familiar with the thinking of Yahoo's board of directors said they see no need to compromise with Icahn and accept some of his rival slate as a way of defusing the proxy battle by Icahn to displace Yahoo's entire board.
The moves come in the busy final days before an Aug. 1 showdown for control of Yahoo. Several proxy advisory firms are expected to weigh in with recommendations to investors on whether to support the Yahoo or Icahn camps.
Meanwhile, Yahoo is expected by many Wall Street analysts to report weak quarterly results on Tuesday in the face of slackening demand by some key corporate advertisers.
Yahoo's position was bolstered on Friday when fund manager Bill Miller, chief investment officer of Legg Mason, said he would support Yahoo's existing board at the Aug. 1 annual shareholder meeting in Silicon Valley. Legg Mason recently held about 60.7 million Yahoo shares, about 4.4 percent of those outstanding.
That was a blow to billionaire investor Carl Icahn's two-month campaign to replace the embattled Internet media company's board of directors and then reopen negotiations on a full or partial merger of Yahoo with Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz).
Yahoo spokesmen were not immediately available to comment.
YAHOO CAMP GAINS CONFIDENCE
The Wall Street Journal reported on Saturday that four Yahoo officials, including Chief Executive Jerry Yang, and three outside board members met with top proxy advisory firm ISS Governance Services, with Yahoo stating its case for ISS to support the company in the Aug. 1 proxy vote.
Details of the Journal story, which did not name sources, said Yang and his colleagues gave no indication to ISS that they would settle for offering Icahn four board seats as a compromise. ISS is a unit of RiskMetrics Group (RMG.N: Quote, Profile, Research, Stock Buzz).
At the ISS meeting, the Yahoo officials reviewed both their board and the Icahn lineup without saying whether they would find Icahn's nominees "acceptable," the paper said.
Many institutional holders of Yahoo are likely to look to the recommendation by ISS or other proxy advisors for how to vote in the board of directors contest at the annual meeting.
Yahoo's stance reflects growing confidence that its slate of directors is in a stronger position with investors other than Capital Research, Yahoo's largest investor, one source confirmed to Reuters. That source could not confirm details of the meeting between ISS and Yahoo officials.
Gordon Crawford, lead portfolio manager at Capital Research, had angrily criticized Yahoo management's failure to come to terms with Microsoft on a $47.5 billion deal in May. Capital Research owned 220 million, or 16.3 percent of Yahoo shares as of March 31, according to U.S. regulatory filings.
HYBRID BOARD PLAN
Jackson called on Plan B members to vote for five current Yahoo directors, including Yang, Hewlett-Packard printing executive Vyomesh Joshi, Activistion CEO Robert Kotick, former Microsoft manager Maggie Wilderotter and former Northwest Airlines Chairman Gary Wilson.
He called on shareholders to support four Icahn nominees, including Adam Dell, a venture capital investor and investor in start-up HotJobs which was sold to Yahoo, two advertising executives, Edward Meyer and John Chapple, along with Harvard professor and outspoken executive pay critic Lucian Bebchuk.
"We are confident this new hybrid Yahoo board can effectively conclude a deal with them (Microsoft)," Jackson said.
A year ago, Yang took over from former CEO Terry Semel, but Jackson now believes Yang, too, should step aside: "Yahoo would be better served with a different CEO, but I think he should stay on the board," the activist investor said.
Jackson said his recommendation of the five existing Yahoo directors should not be interpreted as satisfaction with the current board, which he blames for allowing a host of corporate governance missteps to occur over the past four years. Rather, he argues the partial board is needed to ensure continuity even as he advocates that it seeks a merger with Microsoft.
At Yahoo's 2007 shareholder meeting, Jackson and his Plan B group called on other shareholders to withhold their vote for certain Yahoo board members in a protest over executive pay.
Roughly one-third of shareholders voted against the three members of Yahoo's compensation committee in protest over the company's poor performance in recent years and failure to link executive pay to performance. Details of the Plan B proposal will be available at
www.youchoose.net/yahoo. (Editing by Ian Geoghegan)
Thursday, July 17, 2008
Posted by: Rob Hof on July 15
Despite Yahoo’s rejection of a new search deal offer from Microsoft last week—one that went over like the proverbial turd in the punchbowl with some shareholders—the software giant this time is leaving its walking shoes in the closet. A number of sources indicate that despite twice walking away from previous deals for all of Yahoo and then its search operations, it’s not yet giving up on the possibility of a deal with Yahoo before its much-anticipated annual meeting on Aug. 1.
In the last couple of days, people from Microsoft have been busily dialing up Yahoo shareholders. The goal is partly to do damage control on the latest search deal. Its terms as relayed by Yahoo (and subsequently denied by Microsoft), such as a 24-hour deadline and a requirement that
Yahoo’s board be replaced, struck many people as poorly conceived and delivered. Microsoft aimed to explain how the deal was much-improved over the last one, which Yahoo also rejected, and how the value of the deal’s revenue-sharing, equity, and loan provisions, plus Yahoo's current stock price, added up to $33 a share, same as Microsoft’s last Yahoo buyout offer.
But most interesting, one shareholder says Microsoft also asked for suggestions on how to improve its offer. “We think Microsoft wants it,” says this person, who disliked the complexity of the multi-part deal and didn’t think it was worth Microsoft’s imputed value. “They’re picking up the phone and talking to people. It doesn't strike me as the behavior of a company that's walking away," says this person, who might be swayed by a considerably larger cash component and less other baggage, such as the loan. This person’s guess: “They’ll come back with another offer.”
Another shareholder, who is long past weary of the antics of all sides--the phrase “nut jobs” actually came up in the conversation--says the takeaway from Microsoft’s latest search offer was that “Microsoft is in the game. They’re obviously still working very hard on something.”
Microsoft won’t comment on what it plans to do next, though sources close to the company say Microsoft would be open to changing the equity part of the offer. And there’s no certainty, of course-—of course! This is Microsoft and Yahoo, after all-—that Microsoft will come back with a significantly different deal, or another deal at all. I’m told that much of Microsoft’s overtures of the last two days to Yahoo shareholders is “reputational.” In other words, Microsoft’s trying to recover the high ground it clearly lost with an Icahn-influenced deal that, by a number of people’s reckoning, Yahoo’s board could not have accepted.
Still, despite the bad blood, I wouldn’t be surprised to see Microsoft return with another version of the search deal, because Yahoo is really its only chance to chip away at Google’s dominant position. People close to Yahoo say that although the company may prefer a buyout offer, it’s open to a workable search deal with Microsoft.
But at this point, Yahoo may be even more reluctant, if that’s possible, to consider anything but an indisputably great deal that would trump the inevitable complexity of a search deal. People close to Yahoo's thinking believe that unlike a buyout, which would be a simpler proposition, a search deal probably can’t be hammered out before Aug. 1. And Yahoo at this point isn’t inclined to delay the annual meeting once again—especially since sentiment lately has been turning its way for the first time in a long time.
The other challenge for Microsoft is that many shareholders still wish it would return with its last, since-abandoned $33-a-share offer to buy all of Yahoo—something that all signs for now indicate Microsoft has little desire to revisit. “I’m not interested in a complex deal,” says small Yahoo shareholder Eric Jackson, whose campaign against former Yahoo CEO Terry Semel last year drew a lot of attention. “I would like to see a full-out acquisition, and I think that’s the dominant view of most shareholders.”
Absent a buyout, then, it’s clear that shareholders will want a slam dunk of a good search deal. And maybe Yahoo, under fire Tuesday by folks in Congress for its search deal with Google, might even finally accept it. Stranger things have happened.
And what about Icahn? While some people like Henry Blodget think he has already lost the proxy fight, I think it's still early to write off his dissident slate. If he manages to keep working with Microsoft on a deal more palatable to all concerned, or comes up with a decent new CEO candidate to replace Yahoo CEO Jerry Yang, as he has vowed to do, he might win the backing of enough shareholders, no small number of whom have little confidence in Yahoo's board or management by now.
But neither Icahn nor Yang nor Microsoft CEO Steve Ballmer wants to let it come down to a shareholder vote, whose outcome is far from certain for either side. So, bottom line: Expect more dealmaking in coming days and weeks.
Tuesday, July 15, 2008
Little Progress Seen In Full Acquisition Of Firm by Microsoft
Wall Street Journal
By JESSICA E. VASCELLARO and ROBERT A. GUTH
July 15, 2008; Page B10
Yahoo Inc. and its opponents dug in for battle as investor Carl Icahn finalized his proposed slate of Yahoo directors and Microsoft Corp. pressed its own case for why a deal with the Internet company would benefit Yahoo shareholders.
The back-and-forth among the three parties, which included differing accounts of a proposal to break up Yahoo that the company rejected over the weekend, is part of the lead-up to an Aug. 1 meeting of Yahoo shareholders that will include a vote on Mr. Icahn's proposal to install a new Yahoo board.
But as the tension between Mr. Icahn and Yahoo escalates, there are few signs of progress on the option shareholders appear to want most: a full acquisition of Yahoo by Microsoft. That option, which Microsoft had spent the early part of this year pursuing, is no longer being seriously considered, people familiar with Microsoft's thinking say.
Instead, Microsoft executives are focused on buying Yahoo's Internet search business, a far-cheaper option and one that could boost Microsoft's efforts to counter Google Inc.'s steady growth.
Microsoft submitted its latest proposal for such a deal Friday. Mr. Icahn, who wanted his directors to control the remainder of Yahoo, helped deliver the offer to Yahoo. Yahoo's board rejected it Saturday but said it would be interested in selling the whole company.
By pushing for an outright purchase, Yahoo could be increasing its chances for keeping its board in place and fending off Mr. Icahn's assault. Investors continue to prefer a full acquisition to a more-complex deal for the search business of the sort Microsoft proposed in recent days. While Microsoft has focused on alternatives to a full purchase, Yahoo is keeping the notion alive by reminding shareholders that it told Microsoft it is open to such a deal and could complete it before the shareholders meeting.
"Yahoo definitely has the upper hand," said activist investor Eric Jackson, who represents a loose group of shareholders that collectively own 3.2 million Yahoo shares. But the momentum could shift, he said, if Mr. Icahn comes up with another offer.
One large Yahoo shareholder said in an interview Monday that while he preferred a full acquisition, he believes that Microsoft's latest search deal is a good start and that the Yahoo board ought to be replaced if it couldn't execute it.
In a letter to Yahoo shareholders Monday, Mr. Icahn continued to try to garner support for selling the search business to Microsoft, and he promised to fast-track discussions over that deal if his nominees were elected. The investor, who controls funds that own nearly 5% of Yahoo, accused Yahoo of distorting the facts in issuing its rejection of Microsoft's latest offer. He said that by his calculation, the value of the search sale to Microsoft, combined with the remainder of the company and other aspects of the deal, would be valued at close to $33 a share to Yahoo shareholders. The offer included a cash payment to Yahoo as well as an equity investment and a loan to the company.
A critical piece of Microsoft's offer was its guarantee of revenue that would be paid to Yahoo after it bought the search business. Under the proposal, Microsoft guaranteed to Yahoo from $19.5 billion to $26.5 billion over the next 10 years, according to people familiar with the situation. In return, Yahoo would need to guarantee that its Web site, which feeds traffic to the search business Microsoft would buy, would continue growing at a certain level, these people say.
Yahoo, in a letter to shareholders and in filings with the Securities and Exchange Commission, Monday disputed the value of the proposed deal and reiterated a laundry list of problems with the proposal.
In particular, the company said Microsoft's revenue guarantees were below expectations for its own business, called the proposal's estimation of cost savings "unrealistic" and said a recently struck agreement with Google can generate higher operating income. Mr. Icahn still "lacks a plan that makes sense for Yahoo stockholders," Yahoo Chairman Roy Bostock and Chief Executive Jerry Yang wrote in a joint letter.
Microsoft chimed in with a statement Monday, disputing Yahoo's account of talks last week, specifically Yahoo's contention that on Friday, Microsoft gave it an unreasonable deadline of 24 hours to agree to a deal. Microsoft said the offer wasn't an "ultimatum" but rather an attempt to see if Microsoft's offer was sufficient to "form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets."
Microsoft also addressed a dispute over whether the proposed deal would require changes to Yahoo's board and top management. Microsoft said its proposal "did not include changes to Yahoo's governance." A person close to Yahoo said "governance was a part of the offer," which was discussed in multiple calls between Yahoo, Microsoft and Mr. Icahn.
Sandeep Aggarwal, senior Internet analyst at investment bank Collins Stewart LLC, said Mr. Icahn probably can win a few seats with the search deal on the table but is unlikely to replace the entire board if Microsoft is unwilling to buy the whole company. "Convincing investors to vote in a new board because Microsoft will do a potential search deal is not going to be as easy as changing the board for a full acquisition," he said.
Mr. Yang prepared Yahoo employees for the proxy fight to intensify in a company-wide email Monday. "Proposals and attacks by Microsoft and Carl Icahn leading up to our meeting are likely to get even more contentious," he wrote.
Write to Jessica E. Vascellaro at firstname.lastname@example.org and Robert A. Guth at email@example.com
Sunday, July 13, 2008
As the CAW's change of command illustrates, anointed successors arrive with clear advantages but also face clear challenges
July 11, 2008
Even though he was hand-picked by his predecessor, Buzz Hargrove didn't want to be a clone of Bob White as president of the Canadian Auto Workers.
Mr. White had become extremely popular in the job for his calm and consensus-building approach.
"I was different," Mr. Hargrove says. "Bob once described me as like a bull: 'You just put your head down with your horns out and charge into whatever's in the way.'
"I had to prove to people that I was not Bob White's assistant any more - I was the president with a different style and vision," Mr. Hargrove recalls of taking on the union leadership in 1992.
Now Mr. Hargrove expects his hand-picked choice, Ken Lewenza, to do the same after he formally hands over the mantle of leadership in September.
That's sound advice, leadership experts say. While there are obvious advantages to being the anointed one - Mr. Lewenza, for instance, avoided the need for an election as his two rivals for the presidency of the CAW stepped aside this week - being hand-picked also comes with challenges.
When you're handed the keys to the office from a successful predecessor who groomed you for the job, there's a temptation to decide that you should be a "mini-me" of the person who came before you, says Eric Jackson, president of Jackson Leadership Development in Toronto.
In some ways, you feel indebted to the person who gave you this opportunity and try to carry on in the same style, he says.
"Hand-picked leaders are often reluctant to take the organization in a new direction because, after all, the existing approach worked," Mr. Jackson says. "But that's a mistake. You must become your own leader and do what is important for the organization today, and not just carry on in the way that used to work."
Having employees see a new boss that looks exactly like the old one can lull them into thinking of the new leader as a clone and have them develop a mindset that innovation and independent thinking is not important, he adds.
"With everything changing so rapidly, especially in the auto industry, you can't stay stuck in the old model and have everyone come to expect that there is only one way to get things done."
Another danger in having a leader anoint a successor is that "it can set up an expectation in the organization that you have to be a parrot and look like and sound like the boss to rise in the organization," says Julian Barling, associate dean of the Queen's University School of Business in Kingston, Ont.
So it is important if you are a hand-picked successor to develop a strategy to move out of the shoes of the predecessor and win over and reassure staff you are your own person.
But don't rush it. "It's generally a mistake to immediately jump in and start imposing your agenda and barking orders or saying: 'I'm going to start making changes,' " warns Ron Crossland, chairman of Cincinnati-based Bluepoint Leadership Development Inc. and author of The Leadership Experience.
When you are a chosen successor, chances are the organization is running relatively smoothly and you don't have to rush into the changes, Mr. Crossland says.
Mr. Crossland suggests a "handshake period" of a few weeks to get to know people before setting your own agenda in motion because people in the organization may be fearful and will be scoping out your intentions.
"The first few weeks is a golden opportunity to get feedback because at the start people feel you are more at parity with them."
A leader hand-picked by a high profile predecessor should be particularly aware of pent-up concerns employees (or, in CAW's case, union members) may have, Mr. Crossland says.
"A high-profile and individualistic leader may have been so dominant that people in the organization are chafing for more participation and involvement in decision-making," he says.
"If you don't hear grievances and suggestions early on, people will start to clam up once you start putting your agenda into motion. Once you become a busy leader, you don't hear the truth any more because people pull their punches because you are the boss and they will cover their butts."
You must honour the success and ideals of the person you are replacing, the pros say. But it is important to communicate that you are still setting your own course, and make it clear you're up to the challenge, Mr. Crossland recommends. "If the person was beloved and represents good things to the organization, the concern is, 'will that strong voice dissipate?' "
He recommends reassuring statements such as: "While I have big shoes to fill, I am determined to fill them."
And remember the team that played a big role in the success of the departing leader, he adds. "One of the biggest problems in an organization led by a high profile leader is that the one person is given too much credit for the success of what is the result of a team effort."
He suggests a phrase such as: "Some of the bigness of these shoes is due to your efforts and I want to hear what your issues are and what do we need to do together."
That's the approach Mr. Hargrove says proved extremely effective for him. "I was determined that I was going to use my own approach and build a reputation as a hands-on guy who knew what I was doing and when I made a decision I would stick by it.
"I moved to do that immediately by travelling right across the country to meet with staff and union members and engage them in my vision and hear their vision for where the union was going," he says.
That personal communication was the key to his emerging from obscurity to becoming a household name, he suggests. "Most people can adjust to different styles. What they don't like is being blindsided by not being told what to expect."
The company's lack of compelling new phones continues to depress market share, which threatens plans to spin off the handset division
July 10, 2008, 12:40AM EST
by Olga Kharif and Roger O. Crockett
Motorola's phones once held so much cachet that mammoth wireless carrier AT&T clamored for the exclusive right to sell the best-selling Razr. This year, AT&T (T) has taken only one new Motorola phone, the Z9 slider.
The company's falling star at AT&T, the largest U.S. mobile-phone carrier, underscores Motorola's persistent failure to release handsets that grab the attention of consumers and the service providers whose marketing is crucial to sales. It only reinforces concern over Motorola's ability to spin off the leaderless, money-losing handset division.
Once having commanded more than one-fifth of the global handset market, Motorola (MOT) likely ended the second quarter with 8.5% share, from 9.3% in the first quarter, according to Avian Securities. In June, Avian analysts surveyed 100 representatives of AT&T, Verizon Wireless, Sprint Nextel (S), and T-Mobile USA (DT) retail locations and found that Motorola phones no longer even make it onto the list of the top 10 best-selling handsets. Motorola's shelf space at the major carriers declined to 15% in June, from 18% in May, according to the survey. "They lost a lot of scale," says Avian's Matt Thornton.
Motorola's ability to gain share is being hampered as rivals including Apple (AAPL) and Research in Motion (RIMM) step up their attack on the market for smartphones, multifeatured handsets that deliver e-mail, productivity applications, and other advanced services. Motorola has yet to deliver AT&T an update to its smartphone, the Q, which debuted in 2007. In roughly the same time frame, Apple has delivered two versions of its popular iPhone.
BlackBerry maker RIM has released two new smartphones with AT&T this year alone. Samsung's recently released Instinct is another device grabbing buyers' attention. Some analysts see Motorola losing further share. Motorola may end up with as little as 6% global market share by yearend, Thornton estimates.
No Guarantee of Spin-Off Success
Greg Brown, who succeeded Ed Zander as Motorola CEO last year, has acknowledged that Motorola needs a fresh lineup of phones—and that the company was working diligently on getting new products to market. Still, Motorola lags competitors in doing just that. Motorola's few releases—such as the Z9 slider—have fallen relatively flat. "Motorola is taking aggressive steps to improve the performance of the mobile devices business," company spokeswoman
Jennifer Weyrauch says in an e-mailed statement. "We are working more closely than ever with customers to tailor our innovative products to meet their needs. We're also sharpening our focus on product development to deliver the mobile experiences consumers desire."
Aggressive as those steps may be, they're doing little to assuage the concerns of investors such as Eric Jackson, who until recently held the stock in hopes that recent changes that handed a board seat to financier Carl Icahn would catalyze a turnaround. But Jackson dumped his holding a month ago, despite a 30% loss. "As an activist investor, you have to be ready to find out the situation is worse than you thought," says Jackson, founder of Ironfire Capital. "Then, you've got to be able to cut your losses."
Unable to stem its own mobile-phone losses, Motorola is believed to have tried to sell the handset division. When those efforts failed, it opted to spin it off. Now the spin-off plans are faltering as well, in part because the economic slump is eroding demand at Motorola's other businesses and weakening the company's financial standing, analysts say. "Any deterioration in [other divisions] will place additional pressure on profitability and cash flow with implications for the timing and viability of the planned spin-off of the handset business," Avian's Thornton wrote in a July 7 report.
On June 23, Piper Jaffray (PJC) analyst T. Michael Walkley cut Motorola shares to sell in part because he doubts the spin-off is likely any time soon. Motorola stock fell 18¢, or 2.5%, to 7.15 on July 9. The shares have declined 56% since the beginning of the year.
Even if Motorola succeeds in spinning off the money-losing business, public markets may not welcome it with open arms. "We never were confident the separation would generate more shareholder value," says Todd Rosenbluth, an analyst at Standard & Poor's, which, like BusinessWeek.com, is owned by The McGraw-Hill Companies (MHP). "The handset business has been supported by sales to cable customers and government contracts. A struggling business on its own may not be the best thing for investors."
So what's Motorola's Plan C? Weyrauch, the spokeswoman, says the company is "moving forward with our plans to create two independent, publicly traded companies." American Technology Research analyst Mark McKechnie says shuttering the business is now a real possibility.
Motorola could also revert to Plan A, some analysts say. "We think they are going to get acquired rather than be spun off successfully," says Richard Doherty, director of consultancy Envisioneering Group. In that case, Motorola would be lucky to fetch $500 million, says McKechnie, who as recently as a half-year ago valued the business at $8 billion. Since then, however, market share slides and continued share price declines have prompted him to revise his estimate. Another analyst, Richard Windsor of Nomura, believes Motorola may actually need to pay someone to take the handset division off its hands.
All of this presupposes Motorola can find a buyer in the first place, however. Private equity firms could be induced to buy the division on the cheap. Firms including Bain Capital are reportedly bidding for rival handset maker Huawei, and on July 1, AIG Investments (AIG) purchased UTStarcom's (UTSI) handset business for $240 million. "There are people who want to buy handset companies, and it might be a good time to sell," says David Chamberlain, an analyst at consultancy In-Stat.
Meantime, someone needs to run the business and Motorola may have a hard time finding that person. Sources who asked to remain anonymous tell BusinessWeek.com that at least two people, including an internal candidate and Todd Bradley, an executive vice-president at Hewlett-Packard (HPQ), have declined the top job. Weyrauch declined to comment on the executive search. Rosenbluth sums up the concerns left on many people's minds: "We thought by now we'd have more details [on the restructuring and the new CEO], and the lack of details is disconcerting."
Kharif is a senior writer for BusinessWeek.com in Portland, Ore. Crockett is deputy manager of BusinessWeek's Chicago bureau .
Sun Jul 13, 2008 9:38pm EDT
SAN FRANCISCO (Reuters) - After six months of flip-flop deal talks that drew mostly anger and disappointment from Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) shareholders, the Internet company may finally have done something right.
Yahoo on Saturday rejected what it called a 24-hour "take it or leave it" joint proposal from Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) and activist shareholder Carl Icahn, which involved selling Yahoo's search business to the software maker and handing over the rest of the company to Icahn's slate of board nominees to run.
Most shareholders of Yahoo want Microsoft to buy the company outright, preferably for around $33 a share, and appear to show little interest in any partial transaction that involves only Yahoo's search advertising business.
"Our position is we prefer that Microsoft reenter negotiations to buy the entire company," said Robert Hagstrom, a portfolio manager at Legg Mason Capital Management, which is Yahoo's second-largest shareholder.
"We have made no decision on Icahn because we have no information about how he would run the company if Microsoft does not buy Yahoo. Furthermore, the latest developments to sell Yahoo search to Microsoft is unappealing," he told Reuters by e-mail.
Investors now only have Yahoo's version of events. Microsoft and Icahn, which owns nearly 5 percent of Yahoo, have not publicly commented on their proposal so far.
According to Yahoo, the non-negotiable offer required the immediate removal of the current board and top management. It came ahead of a critical August 1 annual meeting, where Icahn is seeking to replace Yahoo's board and oust chief executive Jerry Yang.
Yahoo Chairman Roy Bostock said the offer was not in the best interests of Yahoo's stockholders because the terms were inferior to the company's current business prospects, including its search advertising partnership with Google Inc. (GOOG.O: Quote, Profile, Research, Stock Buzz)
Even Eric Jackson, a minority Yahoo shareholder and vocal critic of Yang during the last six months of on-again, off-again Microsoft talks, said the board did the right thing.
"Shareholders have always preferred a straight acquisition. Yahoo is smart to turn it down," said Jackson, who leads a group of dissident investors with about 3 million Yahoo shares. "As long as Microsoft only wants to do a search deal, Yahoo comes out looking stronger (by rejecting partial deals)."
WAR HEATING UP
Sources familiar with the matter said the latest proposal includes $2.3 billion in guaranteed annual search ad revenue for five years, with the option to extend for another five.
Yahoo had previously said it saw an $800 million annual revenue opportunity in its Google deal, which was non-exclusive meaning Yahoo could still sell search ads using its own technology or partner up with other companies.
But however the numbers stack up, what is clear is that Yahoo has now offered to sell itself to Microsoft for $33 per share, or $47.5 billion total, but Microsoft has refused, according to Yahoo.
Analysts said Microsoft and Icahn must be careful not to appear too much the bully or they risk investor sentiment turning in favor of Yahoo. When Microsoft pushed too hard earlier this year, it resulted in Yahoo signing the search advertising deal with Google.
"There's a certain degree of sentiment that's moving toward Yahoo," said Canaccord Adams analyst Colin Gillis. "Investors want to see a price per share Microsoft is willing to pay to buy Yahoo. If there is no price, say that definitely."
Microsoft has previously said it no longer wants to negotiate with Yang's team, but that it is willing to resume talks if a new board is elected on August 1.
Sandeep Aggarwal, an Internet analyst with Collins Stewart, said the 24-hour deadline marked an increasingly hostile tone that the standoff is taking.
Microsoft also faces pressure to show progress with its Internet strategy ahead of its July 24 annual meeting with Wall Street analysts, Aggarwal said. Growth in Microsoft's core business is moderating and the company needs to show it is gaining the upper hand in its Internet strategy by making progress striking a deal with Yahoo, he said.
"This appears to be one of the last friendly attempts Microsoft will make before letting shareholders decide at Yahoo's annual meeting," he said. "The war will heat up from here."
(Reporting by Anupreeta Das and Eric Auchard in San Francisco, Muralikumar Anantharaman in Boston and Sinead Carew in New York, writing by Tiffany Wu; Editing by Toni Reinhold)
Friday, July 11, 2008
By Eric Jackson
07/11/08 - 10:59 AM EDT
Microsoft (MSFT - Cramer's Take - Stockpickr) and Carl Icahn this week effectively upturned the conventional notion that you must negotiate a transaction with another company's board. The software company and the activist investor are essentially bypassing Yahoo!'s (YHOO - Cramer's Take - Stockpickr) board and saying, We're fed up and won't deal with you any longer. Instead, they're negotiating directly with Yahoo!'s shareholders by trying to take control of the board at next month's annual meeting.
The implications for boards, activist investors and future takeover battles are significant. Dumb and lazy boards can no longer stand in the way of the will of shareholders.
Challenging the Conventional Thinking
Martin Lipton, famous lawyer and father of the poison pill, is a popular defender of omniscient and omnipotent corporate boards that, he believes, deserve to be unfettered from answering to shareholders. He has repeatedly spoken out on the perceived dangers of the diminishing power of the board in the face of rising shareholder demands over the last five years.
He and others of his view have argued that because corporate boards are elected each year by the will of the shareholders, these boards should be left to guide the company in its long-term interests. (He omits the fact that 95% of the time they succeed in uncontested elections and the Securities and Exchange Commission has done little to allow for contested elections in the last 20 years.)
Lipton argues that, if each short-term strategic decision must be brought back to the shareholders, almost like a referendum, before a company can act, two major problems emerge. First, the corporation slows down considerably. Second, Lipton says, shareholders will consistently opt for the short-term benefits at the expense of long-term interests.
Here's where Lipton is right. There are many activist investors out there. Some are good and successful; others, not so much. There are more many more activists today than there were five years ago. But most of the new and smaller ones practice what I call "activism by the numbers." They have a stock set of prescriptions for every company: sell the company, launch a share-buyback plan or pay a larger dividend. They believe their target companies can solve all of their problems with a one-size-fits-all solution. Not surprisingly, this approach fails more often than it succeeds, and it is a major distraction for well-meaning companies who have to address these criticisms.
But here's where Lipton is wrong. We still have far too many misguided boards and executive teams destroying shareholder value year after year and then claiming that only they have the true understanding of how their bumbling efforts will, one day, result in long-term benefits. A good case in point is small Canadian semiconductor company Zarlink (ZL - Cramer's Take - Stockpickr). The same board and management team has been in place for much of the last decade. Over that time, the once billion-dollar Zarlink has lost 92% of its market capitalization (vs. a 20% gain for the Nasdaq).
Not surprisingly, one of its 5% holders (who is not traditionally an activist investor) just launched a proxy contest to remove the CEO, chairman and several other directors who have presided over a terrible track record. The incumbents' response: this shareholder is being "self-serving" and is a "short-term" thinker. Presumably, management needs another decade and all shareholders need to be quiet and suffer along.
What Yahoo! Lacks and Icahn Needs to Correct
In my view, Yahoo!'s board has been asleep at the switch for several years now, while continuing to shell out lavish pay for under-sized performance. Icahn and Microsoft are right to make the case against them directly to shareholders, and they will likely succeed in the final vote. If this is a trend we are watching start here -- where activists go around intransigent boards and take their case directly to shareholders -- I say, May the best arguments win.
In the short term, more aggressive shareholders will make boards more hesitant, reluctant to fight activists, more difficult to recruit for, and, according to Lipton, more short-term thinkers. In the long term, however, this discipline will cure a lot of lax and cozy boards.
Details and plans matter more than sound bites. Frankly, both Yahoo! and Icahn have been weak on these since this proxy battle began. Yahoo! incessantly mouths PR-created sound bites about aspiring to be a "must buy" and "start page" with no credible plan for getting there. Then, they turn around and criticize Icahn for not having a plan.
Icahn has left himself open to such attacks. He has a two-part plan: (1) sell to Microsoft and (2) replace Jerry Yang as CEO with an "operator."
The Yahoo! proxy vote on Aug. 1 will hinge on the largest Yahoo! holders. Up until now, although they've been dismayed at the incumbent Yahoo! board, they've worried about Icahn's ability to actually bring Microsoft back to the table and his ability to actually run the company for a period of months/quarters assuming he sacks Yang and President Sue Decker, and as other senior managers continue their exodus from Yahoo!'s Sunnyvale headquarters.
Icahn surprised many this week when he revealed he's lined up the tacit support of Microsoft CEO Steve Ballmer. Icahn now needs to address that second concern. If he can get former head of AOL, Jon Miller, and former head of Fox Interactive Media, Ross Levinsohn, to agree to step in (as he's reportedly trying to do), it would solve the problem well. I expect Icahn will announce some sort of solution for this "leadership" problem in the coming 10 days.
There's no question that Icahn's looking increasingly strong in this campaign, when that wasn't a case only a week ago. Yahoo! knows this. The company's management should begin serious heart-to-heart compromise discussions with Icahn, if it hasn't already.
I give shareholders more credit than Marty Lipton. This Yahoo! battle demonstrates that shareholders can weigh promises of hoped-for long-term benefits from a management team that has lost credibility with the real possibility of a near-term premium for their shares, and make a fair judgment.
It's been painful watching this awkward dance between Yahoo!, Microsoft and Icahn over the last six months. Microsoft needs Yahoo! to make its Online Services Division relevant, and Yahoo! shareholders need to wake up from this four-year nightmare. With any hope, the end is near.
At the time of publication, Jackson was long Yahoo!.
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.