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Yahoo!: 99 Problems But the Board's The Big One

NEW YORK ( TheStreet) - Hopes were high for a Yahoo! (YHOO - Get Report) turnaround when Scott Thompson became CEO and Roy Bostock announced he would no longer be Chairman of the Board. Those hopes, however, are dimming as a proxy battle looms on the horizon.

Yahoo! appointed three members to its board on Sunday, just days after largest shareholder Third Point, run by Daniel Loeb, attempted to clinch four seats on the company's board.

In addition to himself, Loeb wanted to add Harry Wilson, Michael Wolf and Jeff Zucker, formerly of NBC Universal, to the board. Yahoo! said 'thanks, but no thanks.'

Inevitably, Loeb isn't happy about Yahoo!'s decision, and now a proxy battle's brewing. This hardly spells good news for a Yahoo! turnaround, according to Sanford Bernstein analyst Carlos Kirjner.

"The potential for a proxy battle with activist investors led by Third Point seems to have increased over the last several weeks," he wrote, in a recent note, citing a proxy battle as one of Yahoo!'s major problems. "The risk is that such confrontation would consume important time from the senior management team and lead to bad strategic decisions or poor execution," Kirjner wrote.

Third Point also made this point in its press release on Sunday. "Sadly for shareholders - who will once more bear the costs - the consequence of the Board's refusal to accept Third Point's shareholder-friendly proposals will be a time-consuming and distracting proxy contest that the Company can ill-afford," it said. Loeb, who has never been known to mince words, referred to the board as "dysfunctional."

When Scott Thompson, formerly of PayPal, was announced as CEO, and the embattled Bostock decided he would not seek re-election, there was optimism that the company would get back on track.

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