Internet company will add Starboard-backed directors to board, clearing way for a sale

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 28, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
Verizon Communications (NYSE:VZ)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Verizon Communications Charts.
Verizon Communications (NYSE:VZ)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Verizon Communications Charts.