With the settlement, Starboard will get four of its allies, including its CEO, Jeffrey Smith, on Yahoo’s board. Smith will also get a seat on Yahoo’s strategic-review committee, the team that’s running the sales process of Yahoo’s core business.
In return, Starboard will retract its plan to replace Yahoo’s entire board, taking a full-blown proxy fight out of the picture.
This is the latest development in Yahoo’s fight to revive its business. Facing years of stagnant growth, activist investors have been pressuring Yahoo to sell its core business, which is reported to have drawn more than 10 bidders as of last week. The market ascribes most of Yahoo’s value to its Asian assets, including its ownership stake in Alibaba and Yahoo Japan.
Here’s what the settlement means and what’s likely to happen to Yahoo in the future:
Core business sale could happen sooner: The settlement eases the path toward the core sale, which is reported to be facing some internal resistance. SunTrust analyst Bob Peck says that the most critical move was getting Smith on the strategic committee because he will now have direct influence on the core sales and potentially speed up the process.
The next immediate step for Yahoo would be to share more financial information with potential buyers. Peck believes that the sale could happen as soon as this quarter, although it will likely take longer to actually close the deal.
Yahoo’s board supports Starboard: Peck also believes the settlement shows that there’s possibly more support for Starboard within Yahoo’s current board. That will make it easier for Starboard to exert influence on Yahoo, despite not owning majority seats of the board.
“Starboard wouldn’t settle for four directors if they didn’t think that other independent directors supported their cause,” Peck told us.
In fact, in a recent CNBC interview, Smith said that he would settle only if he thought Starboard was getting “enough representation on the board where we feel comfortable that we would be able to work with the board members in good faith.”
Starboard’s in the driver’s seat now: The fact that Starboard has four board seats, when it owns only 1.7% of Yahoo shares shows that Starboard is fully in the driver’s seat now. Pivotal Research’s Brian Wieser believes that the board felt it didn’t have enough shareholder support and knew it would lose the proxy fight anyway, so decided to take the settlement instead.
“Considering how little Starboard owns as a company, that’s a lot of influence,” Wieser told us. “It would seem that, for the near term, preferences that Starboard expresses will be dominant.”
Mayer’s days as CEO could be numbered: This all leads to Mayer’s future. Starboard has previously expressed that it would like to bring “significant changes” across the executive-leadership team, and doesn’t seem to support Mayer’s existing turnaround plan.
In a sales scenario, there’s a small chance that the buyer would prefer keeping the current leadership team in place. But most of the leading candidates to buy Yahoo, including Verizon and private-equity firms, are not likely to retain the current management. Verizon already has AOL CEO Tim Armstrong who could takeover Yahoo, and private-equity firms typically bring in their own slate of executives.
“The clock is ticking. I think the sale is a forgone conclusion now, so it’s unlikely that Mayer will stay on with whoever buys the core business,” SpringOwl Asset Management’s Eric Jackson said.
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