Yahoo CEO Marissa Mayer
is facing her biggest business decision since she left Google two-and-a-half
years ago to lead its struggling rival: how to manage Yahoo’s most valuable
asset, a 15 percent stake in Chinese Internet star Alibaba Group worth nearly
$37 billion (roughly Rs. 2,28,475 crores).
“This is a defining
moment for her,” says Eric Jackson, managing partner of hedge fund Ironfire
Capital, a long-time Yahoo shareholder. “Marissa has a chance to really boost
the stock if she plays her cards right.”
Mayer has promised to
outline her Alibaba plans on or before Jan. 27, when the company will release
its fourth-quarter earnings. Most investors are hoping Mayer will spin off the
Alibaba stake to ease Yahoo’s tax bill after the company sells those holdings.
Mayer also is under pressure to return windfalls from Yahoo’s Asian investments
to shareholders instead of plowing more money into an acquisition strategy that
some think hasn’t paid off.
Activist investor
Jeffrey Smith has threatened to lead a shareholder rebellion aimed at ousting
Mayer if she proposes a plan that doesn’t maximize Yahoo’s tax savings or risks
squandering money on far-flung acquisitions.
“Such actions would be a
clear indication to us that significant leadership change is required at
Yahoo,” Smith wrote in a Jan. 8 letter to Mayer. Smith controls 7.7 million
Yahoo shares – a 0.8 percent stake – through Starboard Value LP. The New York
hedge fund last year reshuffled the board of directors at Olive Garden owner
Darden Restaurants and in 2012, Smith unsuccessfully tried to shake up AOL. In
this go-round, Smith is urging Mayer to merge with AOL as part of Yahoo’s
spin-off of its Asian investments, and then launch $1 billion (roughly Rs.
6,175 crores) in cost cuts, most likely laying off thousands of workers. Smith
isn’t keen on Mayer buying anything besides AOL because she has already spent
$1.7 billion (roughly Rs. 10,497 crores) on a grab-bag of more than three dozen
acquisitions that haven’t yet helped lift Yahoo’s revenue.
Yahoo declined to
comment on Smith’s letter or Mayer’s plans for the company’s investments in
Alibaba and Yahoo Japan.
Yahoo bought the Alibaba
stake in a deal engineered a decade ago by Yahoo co-founder Jerry Yang. Alibaba
operates online sites that account for some 80 percent of Chinese e-commerce
and emerged as one of the Internet’s hottest companies right around the time
Mayer arrived at Yahoo in July 2012 – a bit of fortunate timing that has given
her more time than she might otherwise have had to figure out how to revive
Yahoo’s revenue growth. Before Alibaba completed the biggest IPO in history
four months ago, Yahoo shares were the easiest way for investors to buy a piece
of the Chinese company. Alibaba’s stock has climbed by about 40 percent from
its initial public offering price of $68, a surge that has lifted Yahoo, too.
Shares of the Sunnyvale, California, company have more than tripled in the last
two-and-a-half years.
Mayer has publicly
applauded Yang for the Alibaba coup, but also has taken credit for some of the
company’s progress. She overhauled Yahoo’s apps, acquired more engineering
talent and technology to make the company a bigger player in the increasingly
important mobile computing market, trimmed its workforce and spent $7.7 billion
(roughly Rs. 47,547 crores) buying back stock to help boost earnings per share.
“We’ve achieved much
more than many people realize,” Mayer told investors and analysts in October.
Mayer also helped
improve Yahoo’s relationship with Alibaba after tensions flared between the
companies under previous management. The fence-mending enabled Yahoo to
negotiate a contract that let the company hold on to its Alibaba stock for a
longer period and reap even more gains.
“I don’t think Marissa
gets enough credit for addressing that Alibaba situation,” says S&P Capital
IQ analyst Scott Kessler. “Clearly, she has done a better job doing that than
her predecessors.”
Yahoo, though, still
hasn’t snapped out of a financial funk that began around the same time as the
Great Recession in late 2007. Yahoo’s quarterly revenue has declined from the
previous year in all but two of Mayer’s nine quarters as CEO. The only revenue
gains have been meager, ranging from 1 percent to 2 percent. Meanwhile, the
overall Internet ad market has risen by 14 percent to 18 percent each quarter
of Mayer’s reign, according to the Interactive Advertising Bureau.
Mayer has repeatedly
pleaded for patience, something that Jackson believes is running low among
Yahoo shareholders.
“She still has
opportunities in front of her, but I have become frustrated with her
performance,” Jackson says. “It hasn’t been as good as it should have been.”
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