After speaking with Eric Jackson, founder of hedge fund Ironfire Capital and noted Yahoo watcher/commentator, we believe Yahoo founder Jerry Yang’s resignation from the company’s board yesterday is a tipping point for the company and its shareholders.
Yang had been the main force opposing moves shareholders have been calling for: selling off the Asian assets and slimming down the core business. With Yang out of the picture, Jackson believes we’re headed for an acceleration. (Note that Jackson is a Yahoo long, so, obviously, he’s talking his book to a certain extent. But he’s also one of the Yahoo watchers who knows the company best.)
Here’s what could come next:
- A refresh of the board. The four longest-serving board members, Gary Wilson, VJ Joshi, Art Kern and chairman Roy Bostock, could leave next, before February 24, when activist investor Dan Loeb can launch a proxy contest against the board.
- A “cash-rich split” to sell off the Asian assets. Insiders believe chairman Roy Bostock, who is widely loathed by shareholders, and is overseeing the negotiations to dispose of the Asian assets, wants to complete this final deal to end his tenure on a good note. Jackson thinks he wants to do this before the February 24 deadline.
- A more shareholder-friendly financial profile. There are many things Yahoo could do to reward shareholders, especially after selling off the assets: a special dividend, stock buybacks, and taking on debt to increase the dividend, as Yahoo’s business is gushing cash.
- A slimmed down core business. Yahoo has 14,000 employees. By comparison, Jackson says, AOL and IAC/InterActiveCorp have around 3,000 each. So, Jackson says, Yahoo could cut costs and generate more cashflow to both invest in the core business and return cash to shareholders.
- More investment in the core business. Jackson believes (and we agree) that the hiring of former PayPal president Scott Thompson as Yahoo CEO means Yahoo’s board doesn’t just want to milk the existing core business for cash but truly invest in it and try to turn it around.