Investors turn up the heat on Yahoo as business declines

New York hedge fund SpringOwl Asset Management has proposed slashing Yahoo's workforce by 75 per cent while replacing current CEO Marissa Mayer with an operations-focused chief executive.
New York hedge fund SpringOwl Asset Management has proposed slashing Yahoo's workforce by 75 per cent while replacing current CEO Marissa Mayer with an operations-focused chief executive. PHOTO: REUTERS

SUNNYVALE (California) • Yahoo is facing new pressure from investor groups who oppose giving its chief executive officer, Ms Marissa Mayer, more time to show progress on her turnaround.

Investors like Los-Angeles based Canyon Capital Advisors, which ranks among Yahoo's 15 largest shareholders, sent a letter to the board last Friday, urging it to find a buyer for its core Internet business or the entire company, The Wall Street Journal (WSJ) reported.

Another investor, New York hedge fund SpringOwl Asset Management, has proposed slashing the company's workforce by 75 per cent while replacing Ms Mayer with an operations-focused chief executive.

It also suggested bringing in a strategic partner to help Yahoo navigate the tax issues surrounding its Asian assets.

Investors' patience with Yahoo has begun to wane after years of steady decline in business, with activist shareholder Starboard Value last month calling for the company to sell its Web businesses, or face a proxy fight.

It was also opposed to the spin- off in shares of Alibaba, of which Yahoo holds 15 per cent, worth about US$30 billion (S$42 billion).

With mounting dissent, Yahoo's board last week announced plans to shelve the Alibaba spin-off due to potential tax risks and instead explore a spin-off of its core Internet business. If the company proceeds with that plan, the manoeuvre could take more than a year, extending a turnaround attempt that has so far failed to produce signs of growth.

With no other clear strategy from the management, some investors are sending their own proposals to Yahoo headquarters to pressure the board to set a more precise course, the WSJ report said.

"I disagree with this notion that Yahoo can't be fixed," said managing director Eric Jackson of Spring- Owl, which has US$300 million in assets under management, including an unspecified stake in Yahoo.

He proposes cutting as much as US$2 billion in annual costs by laying off 9,000 of Yahoo's 11,900 employees and contractors, eliminating perks like free food, selling its iconic headquarters and leasing back only the office space it needs.

A separate challenge is emerging from investors who want Yahoo to sell now. Canyon Capital, which owns about 10 million shares, or 1.1 per cent of the company, criticised directors for failing to prepare a backup plan to the Alibaba spin-off.

"The market already assigns significant negative value to the company's mature core operating business and assets and, in our view, this delay will inevitably cause further decline in value," Canyon said in its letter to Yahoo, according to the WSJ.

A version of this article appeared in the print edition of The Straits Times on December 15, 2015, with the headline 'Investors turn up the heat on Yahoo as business declines'. Print Edition | Subscribe