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The Morning Brief: Starboard Renews Pressure on Yahoo

Jeffrey Smith’s Starboard Value is once again turning up the heat on Yahoo!. The New York activist firm fired off a letter to the Internet giant’s board of directors, calling for a change in management, board composition, strategy and execution and threatening to launch a proxy fight if the company doesn’t take certain actions. The hedge fund firm asserts that investors have lost all confidence in management and the board, figuring the market value of the company — excluding its huge, lucrative stake in Alibaba Group Holding — is currently near zero.

“The results of the past three years, which follow several other failed attempts to turn around the business theretofore, should demonstrate to you that turning around this business is extremely difficult,” Smith states in the letter. “To be successful, dramatically different thinking is required, together with significant changes across all aspects of the business starting at the board level, and including executive leadership. New leadership will have to develop and implement a plan to balance priorities between growth and profitability.”

Smith writes that he is “highly confident” there are “interested and credible buyers” for Yahoo’s core business. “If the Board is unwilling to accept the need for significant change, then an election contest may very well be needed so that shareholders can replace a majority of the Board with directors who will represent their best interests and approach the situation with an open mind and a fresh perspective,” Smith warns. Shares of Yahoo! closed down slightly on Wednesday, at $32.16.


A relatively new hedge fund founded in 2014 by alums from Elliott Management Corp. and Perry Capital is locked in its first public activist campaign. On Monday, Ally Financial, formerly General Motors Acceptance Corporation (GMAC), said New York-based Lion Point Capital intended to nominate two individuals to the board of the former General Motors unit, which was bailed out by the government in 2008.

Ally, an auto loan specialist, points out that Lion Point, which ran $950 million as of June 1, holds less than 1 percent of its stock. On December 23 Lion Point sent Ally a letter outlining various demands, including that Ally’s board create a strategic alternatives committee. The same demand was repeated in a non-binding proposal that Ally received on Monday.

The company asserts the formation of a committee “would be widely regarded as a decision to pursue a sale of the company.” Ally said when it first learned of the hedge fund’s investment on November 12, Lion Point assured the company it did not intend to engage in an activist role.

“The Board of Directors welcomes the views of its stockholders and will consider suggestions from all stockholders,” Ally further states in its press release. “It will not, however, undertake any actions that it believes would jeopardize the company’s ability to deliver long-term value for all stockholders.”

On Wednesday, Lion Point, founded by former Elliott portfolio manager Didric Cederholm and Perry alum Jim Freeman, responded to Ally, asserting that it intends to “work constructively and privately” with Ally’s board “to address what Lion Point believes to be the concerns of many shareholders on the significant gap between the company’s intrinsic value and its stock price.” It adds that the board is frustrated about the situation as well.

However, the firm admonished Ally for refusing to extend the deadline for nominating directors and for going public with its private nomination. “Lion Point is particularly disappointed by this move given that it directly contradicted Ally’s consistent statements that it was in the best interest of all stakeholders to keep any dialogue regarding strategic alternatives private,” the hedge fund adds.

In any case, shares of Ally fell 1.61 percent to $18.32 on Wednesday.

An activist is born.


More bad news for Edward Lampert. Shares of AutoNation sank 10 percent Wednesday, to $50.76, after the chief executive officer warned investors that strong fourth quarter sales were mostly due to incentives that affected profitability.

“The fourth quarter industry sales environment was more push versus pull,” states Mike Jackson, chairman, CEO and president of the largest auto retailer, in a press release. “As a consequence, we expect to report significant margin declines for the fourth quarter in both our new and used retail unit sales. We have begun, and will continue through the first quarter, to take the necessary steps to align our costs, inventory, and pricing strategy to adjust to the current market.” Last year, the stock was the best performer for Lampert’s Bay Harbor Islands, Florida-based hedge fund, ESL Partners.


Credit Suisse raised its price target on Adobe, from $65 to $70, but maintained its neutral rating on the stock after the software company reported earnings and margins that were a little better than consensus forecasts. At the end of the third quarter, Jeffrey Ubben’s San Francisco-based ValueAct Capital Management was the eighth-largest shareholder of Adobe, which in turn was the hedge fund’s seventh-largest holding. The stock, however, dropped 1.4 percent, to $91.02.


Fort Management, a $1.6 billion computer-driven hedge fund firm, sold a 10 percent stake to Goldman Sachs fund Petershill II. The terms of the deal were not disclosed. The 23-year-old firm, based in New York and Chevy Chase, Maryland, is led by Yves Balcer and Sanjiv Kumar, who were previously senior fund managers at the World Bank. Petershill has been investing in managers since 2007. Fort is the fourth fund manager Petershill has backed since launching its second fund in 2014. Among the firms Petershill has backed is systematic giant Winton Capital Management, based in London.


The Credit Suisse Liquid Alternative Beta Index was down 1.46 percent in December and down 0.78 percent for the year. The Index aims to reflect the performance of the global hedge fund industry. The Merger Arbitrage strategy led all strategies in December, gaining 1.41 percent and putting it up 1.77 percent for the year. The top performer for the entire year was the Long/Short Equity strategy, up 7.46 percent.

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