Yahoo's most critical investor says he's 'subdued' by its $4.83 billion sale to Verizon

Yahoo activist investor, Eric Jackson of SpringOwl asset management, told Business Insider on Monday his firm was “subdued” by the internet company’s $4.83 billion sale to Verizon.

Jackson has probably been among the most vocal critics of Yahoo in recent months — amongst its shareholders at the very least.

In December last year, he sent a 99-page presentation to the Yahoo board, which called on the company to drop Marissa Mayer as CEO and listed a number of recommendations to turnaround the business and increase value for shareholders.

Yahoo’s eventual $4.83 billion valuation was “disappointing” as it fell at the very low end of what the expectations were for the company’s price at the beginning of the sale process, Jackson said. Back in March, the company was reportedly seeking $10 billion for its core Internet business.

On the one hand, it means the price is so low, Yahoo will only need to pay very little tax on the transaction, Jackson said.

“On the other hand, it’s disappointing to see that this business has decreased,” Jackson added.

EBITDA (earnings before interest, tax, depreciation, and amortization) was a major metric used to base the value of the core business. Yahoo’s EBITDA has substantially dropped year-over-year, as the chart below shows. In its most recent quarter, Yahoo reported EBITDA of $172 million, down on the $262 million it reported in Q2 2015.

Yahoo Inc. (YHOO) Quarterly EBITDA Last 8 Quarters FindTheCompany

One of the core arguments in Jackson’s December document was that Yahoo’s headcount — at the time around 12,500 — was “excessive,” given its revenues at the time of around $4.6 billion.

Yahoo’s headcount is now below 9,000, but Jackson feels the layoffs could have taken place far sooner. Most recently, Yahoo announced a reduction of 15% of its then-11,000 staff in February this year.

“If you did nothing in terms of releasing the latest exciting new apps, or changed the traffic that was going to the site, and just eliminated excessive headcount, EBITDA would increase significantly and therefore the value of the core business would go up substantially,” Jackson said.

Another of Jackson’s recommendations was for Yahoo to cut down on “unnecessary” staff perks like giving employees free iPhones, spending $108 million on free catering, and its lavish holiday parties.

Jackson says Yahoo did at least make improvements in this area — possibly as a result of the publication of this document — as did other tech companies. 

He said:

“In some ways, that document was the turning point, not just for Yahoo but for a number of other Silicon Valley companies, public and private, where the attitudes towards perks changed significantly. You then heard of a number of companies cutting back on and eliminating excessive perks, especially unicorn companies. We certainly made a big deal out of it at the time. The argument the company had made prior to that point was that they needed to offer lavish perks in order to retain the best and the brightest talent. We didn’t believe, given the current macro environment, that they were justified. Those perks were definitely cut back, whether it was acknowledged by management or not.”

Jackson doesn’t believe that Mayer will stay on at the company after the deal closes, which is expected in the first quarter of next year. 

Mayer said on a call with investors that she plans to stay, adding: “I love Yahoo and I’m excited to see it into its next chapter.”

She then went on to outline her two priorities: Seeing the deal through to its close and protecting the value in Yahoo’s equity stakes — both of which appear to be pre-close priorities rather than looking ahead to what life might look like under Verizon. 

Jackson agrees: “It’s speculation, but I doubt she will stay. The language on the call to me just sounded as though ‘I will be around as long as it takes to close this deal and pass it off and move on to the next thing’.”

Mayer was brought on board from Google in 2012 to turnaround the business, but she failed to do so, which is an “unfortunate legacy,” Jackson said.

He added: “We are subdued in a sense. We feel there was more opportunity to increase the value of the company. But under the circumstances, getting a deal now versus continuing on was preferable.” 

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