By Douglas MacMillan and David Benoit
A shake-up of Yahoo Inc.'s board will force Chief Executive
Marissa Mayer to work toward a sale of the struggling Web business
alongside her fiercest critic, activist investor Starboard Value
LP.
Yahoo on Wednesday said it reached an agreement to add Starboard
Chief Executive Jeffrey Smith, along with three of his director
nominees, to its board. Mr. Smith also will join Yahoo's
independent committee in charge of the company's auction process.
Two of Yahoo's current directors won't seek re-election, bringing
the board to a total of 11 directors.
The truce smooths the path to finding a buyer for the Sunnyvale,
Calif., company's core business and figuring out what to do with
its rich stakes in Alibaba Group Holding Ltd. and Yahoo Japan.
Yahoo avoids a proxy battle that could have replaced its entire
board in the middle of an auction process.
But by handing Starboard four board seats, Yahoo ceded
considerable power to an activist investor with a track record of
pushing for changes at all levels of companies, from the merger of
Staples Inc. and Office Depot Inc. to how breadsticks are served at
Darden Restaurants Inc.'s Olive Garden.
Starboard scored a separate win on Wednesday with a deal to get
up to four board seats and lead a search for a new CEO at ailing
chip maker Marvell Technology Group Ltd.
At Yahoo, Starboard's directors will play a central role in
overseeing the auction. Mr. Smith, who has raised concerns the
board wasn't moving quickly enough with its auction process and
wasn't fully open to selling, will now have a seat on the
independent committee of Yahoo directors leading that process.
The field of suitors for Yahoo narrowed this month to a handful
of bidders after a preliminary round that drew interest from dozens
of players. Verizon Communications Inc., seen as the leading
candidate, got a boost as several potential strategic buyers,
including Time Inc., AT&T Inc. and Barry Diller's
IAC/InterActiveCorp. withdrew ahead of a deadline for preliminary
bids last week.
Private-equity firms also are in the running to buy Yahoo. TPG
submitted bids, people familiar with the process said, as well as
an investor group that included Bain Capital, Vista Equity Partners
and former Yahoo CEO Ross Levinsohn.
Yahoo's settlement with Starboard may ease concerns of potential
buyers, who may have worried their bids would be jeopardized by
shareholder angst. Bankers and lawyers said Starboard's presence
likely was adding uncertainty to the bidding process, though also
keeping pressure on the company to sell.
In a news release, Ms. Mayer called the agreement with Starboard
a "constructive resolution." Mr. Smith said in the release that he
looked forward to "getting started right away and working closely
with management and our fellow board members with the common goal
of maximizing value for all shareholders."
It is rare for a company to settle with an activist investor who
pushed to sweep out an entire board, said Patrick McGurn, special
counsel at Institutional Shareholder Services. "Usually the
dissident is not willing to take a minority stake in the boardroom"
after pushing for control of the board, he said.
Since 2008, there have been 99 instances where an activist tried
to throw out the whole board, and only 10 of those companies were
worth more than $1 billion, according to FactSet, which tracks
activist campaigns. Of those attempts, 19 succeeded, only four of
which were worth more than $1 billion, FactSet said.
Yahoo Chairman Maynard Webb led the company's talks with
Starboard, which got more serious over the past week, said a person
familiar with the matter. Thomas McInerney, a Yahoo director and
the former CFO of IAC/InterActive Corp., was key to convincing
Starboard the whole board didn't need to change, the person
said.
In addition to Mr. Smith, Yahoo's board will add Tor Braham,
Eddy Hartenstein and Richard Hill. Mr. Braham was a managing
director at Deutsche Bank AG from 2004 to 2012, and Yahoo said he
has been "directly involved in negotiating or executing numerous
mergers and acquisitions in the technology industry."
Mr. Hartenstein is a director at Tribune Publishing Co., former
chairman and CEO of DirecTV, and former publisher and CEO of the
Los Angeles Times Media Group. Mr. Hill has served as chairman of
Tessera Technologies since 2013.
Two current Yahoo directors, H. Lee Scott, Jr. and Sue James,
opted not to stand for re-election this year, which Yahoo said were
"personal decisions." Yahoo hasn't scheduled the shareholder
meeting, which last year was held in late June.
While Starboard has often forced contentious fights with
companies, it often succeeds in working with management teams after
obtaining board seats. One of Yahoo's new nominees, Mr. Hill,
originally fought Starboard at Tessera before the activist investor
gained seats on that board. He later became a key ally for
Starboard.
That track record has helped Starboard win more settlements like
this one, gaining board seats and influential committee roles
without needing to win the actual votes, a trend that has spread
broadly throughout shareholder activism.
Yahoo added two new directors to its board last month, a move
seen as a step toward girding for a fight with Starboard, and
bringing the board back to a total of nine directors.
Write to Douglas MacMillan at douglas.macmillan@wsj.com and
David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
April 27, 2016 19:32 ET (23:32 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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