Starboard Value CEO Jeffrey Smith is one of the most powerful activist investors in the world.
His job is to find underperforming companies, buy a bunch of its shares and rally other shareholders to pressure the board to make changes that he believes will improve the business. His firm often gets a number of board seats to take control of the company, and replaces the existing management too.
His latest target is Yahoo, the troubled internet company that lost roughly 30% of its value last year. In a letter sent to Yahoo’s board in early January, Starboard demanded “significant changes” at the company, including a change in management, and threatened to launch a proxy fight, if its demands are not accepted.
Smith rarely speaks to the press so it’s not always easy to get a sense of his thinking. But at the MIT Sloan Investment Conference held last week, Smith shared some of this thoughts about Yahoo.
According to Reuters, Smith said he sees “a lot of opportunity” in Yahoo, adding the current management hasn’t had “terrific results” turning around the company so far. Although he didn’t further elaborate, he did give a comment that shows how powerful of an influence he believes activist-appointed directors can be on dysfunctional company boards.
“The light bulb will go off and they do a better job. Sometimes they will turn around so fast that we have sometimes put them on other boards,” Smith said.
In other words, Smith believes an activist investor could bring urgency to a sluggish board, and fuel a successful turnaround plan. Starboard has a history of doing this: After Starboarde replaced the entire board of Darden Restaurants, the owner of Olive Garden and other chain restaurants, the company’s stock value increased by more than 20%.
Smith’s comments come on the heels of a report saying talks between Yahoo and Starboard has been intensifying. According to the NY Post, Yahoo’s board is close to offering Starboard two board seats, while the activist firm wants at least four seats to take majority control.
If the NY Post report is true, that means Yahoo is leaning towards reaching a settlement with Starboard, instead of going on a full-blown proxy fight. Meanwhile, the month-long period to nominate new directors for Yahoo’s board officially kicked off last week, meaning technically the fight between Yahoo and Starboard is already underway.