Yahoo shareholder Eric Jackson has another attacking blog post on CEO Marissa Mayer today.
This time, Jackson argues that Mayer’s pay package isn’t properly aligned with her performance objectives. He also says she’s been selling down her stock, and that sends the wrong message to shareholders and employees.
Jackson did a sum-of-the-parts valuation on Yahoo comparing the company’s value when it started with the company’s value today. He found that when she started, the core business at Yahoo was valued at $US7.3 billion. The rest of the company’s value came from investments in cash, Chinese e-commerce company Alibaba, and Yahoo Japan.
Since Mayer took over, the value of Yahoo’s stake in Yahoo Japan has increased by 71%. When Alibaba IPOs this fall, Yahoo will see its cash reach $US9 billion. Its remaining stake in Alibaba will be worth $US21.8 billion, up from $US6.5 billion when Mayer took over.
After backing all of that out, Yahoo’s core business is only worth $US500 million, says Jackson.
“Under Mayer’s watch then in the past two years, Yahoo’s core business has dropped from $US7.3 billion to $US500 million. (Keep in mind that AOL is currently valued at $US3 billion),” writes Jackson.
Yet, despite the core business shrinking in value, Mayer’s pay is growing because the share price has been skyrocketing as people realised the value of Yahoo’s Alibaba shares.
This frustrates Jackson. But what’s even more galling to him is that Mayer has been selling her Yahoo shares this year. After looking at the filings, Jackson estimates Mayer has sold $US11.6 million worth of Yahoo this year.
Mayer is selling Yahoo through what is called 10b5-1. It allows an executive to just sell shares at a regular interval regardless of the price. It’s hard for executives of public companies to sell stock because of the signal it sends. If an executive sells shares, then one might think that the executive is either saying, “I can’t believe how high the stock is! Time to sell!” or, “I know something bad is coming, so I better dump shares.”
The 10b5-1 allows for automated share selling as a way to avoid those conflicts. Since an executive usually has their net worth tied up in the stock, they need to sell at some point and the 10b5-1 rule is the best way to do it.
Jackson has no sympathy for Mayer or her share sales:
As an investor — and if I was an employee — I want all a CEO’s net worth tied up in a company. I want them to feel like their future wealth and reputation depends on their current company being really successful. I think it sends the wrong message to employees to be selling $US650,o00 in stock every two weeks for walking around money in your pocket.
And given the terrible results of the core business, if anything, I believe Mayer should be digging into her own pocket and buying Yahoo stock, not selling it.
He points out that AOL CEO Tim Armstrong bought $US1 million worth of AOL when its share price was falling with his own money. Jackson wants to see that sort of commitment from Mayer.
But what he really wants, and why Jackson has been on the attack against Mayer lately, is for Yahoo to sell itself to either Yahoo Japan or Alibaba. He says that selling to either one of those companies would lead to $US18 billion in tax savings or Yahoo.
Jackson thinks that would drive Yahoo’s share price to $US60, from $US36 today. And that would make him happy.
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