“Lucky for us and unlucky for them ... we were able to take a meaningful position” in Yahoo, said Dan Loeb, outlining his best investible idea at last year’s Delivering Alpha. Loeb’s vigorous activist style is well known, and he singled the company out as a “grossly undervalued” stock and began immediately to eviscerate the company’s management.
Since he singled the company out, its shares have surged more than 17 percent to a recent $15.98. But the ride has not exactly been a smooth one and Loeb has gone from regarding himself as “us” — that is, the outside investor Third Point — to being part of “them,” having run a hugely aggressive campaign to get a position on the board.
When he touted the stock at Delivering Alpha, he said it was undervalued and would benefit greatly from a rapid transition in management, whom he called “clowns.” The crown jewels were the company’s Yahoo Japan and Alibaba Group stakes. He was especially high on Alibaba Group, stating that its e-commerce business Taobao is is essentially eBay and Amazon on steroids in terms of market share and revenue growth.
In his year-end letter to investors, Loeb said the after-tax value of Alibaba and Yahoo Japan alone constituted $11 per share of Yahoo’s overall stock market value, with an additional $2 per share of net cash. He said at the time Alibaba had 49 percent of the B2B e-commerce market — four times greater than its nearest competitor, 90 percent of the consumer-to-consumer e-commerce market (the eBay) and 53 percent of the business-to-consumer e-commerce market is analogous to Amazon. “The scale and velocity of China’s e-commerce opportunity, when combined with Alibaba’s dominant position, make for a very compelling story,” he told clients.
Sure enough in May Yahoo agreed to sell to Alibaba up to one half of its stake for about $7.1 billion. The two companies also agreed to a framework for Yahoo to monetize the remaining interest in Alibaba in stages.
In April Loeb ratcheted up the rhetoric through the short-lived Value Yahoo website, which was devoted to promoting his campaign to seat his four nominees — including himself — on the Internet company’s board of directors. In addition, Loeb created a Facebook page devoted to his efforts.
The move came shortly after Yahoo’s board appointed three new independent directors, effective April 5, adding it would agree to a compromise that would include placing one of Loeb’s nominees and a mutually acceptable individual on the board. But it rejected placing Loeb himself on the board, asserting it would not be in the best interest of the company and its shareholders.
However, shortly afterward Loeb publicly pointed out that new CEO Scott Thompson exaggerated his academic achievements on its resume, leading to the company’s second firing of a CEO in about six months.
Not long afterward, Loeb agreed to drop his proxy fight when Yahoo agreed to add three of Third Point’s proposed nominees to the board, including Loeb himself. Loeb said in statement then that he and the other two nominees — Harry Wilson, the CEO of corporate restructuring and turnaround firm Maeva, and Michael Wolf, CEO of media consulting company Activate — are “committed to working with new leadership to unlock Yahoo’s significant potential and value.” Loeb also quietly took down valueyahoo.com.
Now, as the company gears up for its July 14 annual meeting in Santa Clara, CA, Loeb, whose hedge funds own 5.81 percent of Yahoo’s shares, has turned into something of an insider. When he was asked to comment for this article, his spokeswoman stated, “Now that we are on the board, we are totally restricted from media conversations on or off the record on the company.”
Not having Loeb badgering and berating the company publicly alone makes having Loeb on the board worthwhile to Yahoo. The big question is what further changes he and his hand-picked directors can spearhead to further boost Yahoo’s stock price.
CNBC and Institutional Investor will be teaming up for Delivering Alpha again on July 18 in New York City. Leading up to the conference, we will be sifting through the best of last year’s Delivering Alpha and previewing this year’s content, which includes the return of Treasury Secretary Timothy Geithner as keynote speaker. We’ll also have two of his predecessors at Treasury in Hank Paulson and Robert Rubin, as well as Preet Bharara, U.S. Attorney for the Southern District of New York. And from the ranks of the country’s best investors we’ll have private equity giant Henry Kravis of KKR, Leon Cooperman of Omega Advisors, Pete Briger of Fortress Investment Group and William Ackman of Pershing Square. For the full agenda, visit the Delivering Alpha website.
