By David Benoit And Michael Calia
Activist investor Starboard Value LP sharpened its rhetoric
toward Yahoo Inc., expressing concern about reports circulating on
the company's potential next moves.
The investor pointed to media reports that have said Yahoo may
be interested in acquiring cable entities. It also focused in on
speculation that Yahoo was considering shedding its shares of
Alibaba Group Holding Ltd. in a tax-saving maneuver known as a
cash-rich split-off that Starboard believes would be the wrong
choice.
"Such actions would be a clear indication to us that significant
leadership change is required at Yahoo," Starboard founder Jeffrey
Smith wrote in a letter to Yahoo Chief Executive Marissa Mayer, a
threat the investor hadn't made in the past.
A Yahoo spokeswoman declined to comment on the letter. Ms. Mayer
has said she plans to share more about her plan for the remaining
Asian assets on or before Jan. 27, when Yahoo reports
fourth-quarter results.
When Starboard first disclosed its investment in Yahoo this past
September, it had pushed Ms. Mayer to stop making acquisitions and
to focus on how to shed its Alibaba shares in the most
tax-efficient manner possible.
Starboard said it was concerned about recent reports that Yahoo
is thinking about trying to acquire Scripps Networks Interactive or
Time Warner Inc.'s CNN because Yahoo hasn't yet made clear its
intentions for its Alibaba stake, worth more than $40 billion at
recent prices. The investment makes up the vast majority of Yahoo's
$46 billion market capitalization. Yahoo hasn't approached Time
Warner about buying CNN, a Time Warner spokesman said.
Mr. Smith urged Yahoo to disclose its plans for its Alibaba
shares but warned again it believed that a so-called tax-rich
split-off would be a bad move. Mr. Smith's letter says Yahoo agreed
with that sentiment in a meeting between the two in October.
Starboard has been urging Yahoo to separate its core
operations--its websites and Internet properties--from the stake in
Alibaba and other Asian properties.
In a cash-rich split-off, Alibaba would create an entity with
two-thirds cash and one-third operating businesses that it would
trade to Yahoo for the entire Alibaba stake. The move would save
Yahoo paying much of the taxes on its gains. Starboard has argued
that approach would still cost more than breaking Yahoo up.
Bob Willens, a tax expert on corporate structures, said the
cash-rich split-off would have more tax leakage and be "inferior to
the other alternative." He also said that "a cash-rich split-off
was going to be significantly more complicated than the
spinoff."
Starboard hasn't disclosed the exact size of its Yahoo stake,
but said it is a "significant" holder. Yahoo shares rose 2.2% to
$49.68 in recent trading.
Douglas MacMillan and Keach Hagey contributed to this
article.
Write to David Benoit at david.benoit@wsj.com and Michael Calia
at michael.calia@wsj.com
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