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What Will Yahoo!'s Mayer Do With All That Cash? (Update 1)

Updated from 10:17 a.m. EST to provide more detail on Third Point in the fifth paragraph.

NEW YORK ( TheStreet) -- Yahoo! (YHOO - Get Report) CEO Marissa Mayer has not been on the job a month, but she's already making some bold steps to try to change the company's fortune. Now it looks like she's changing the fortunes of shareholders as well.

Yahoo! filed an 8-K discussing the use of the cash the company is expected to receive from its deal with Alibaba, of which it owns a significant portion. Yahoo! is set to receive $7.1 billion from Alibaba as the Chinese e-commerce company buys back half of the stake Yahoo! owns.

The original plan was to return this cash to shareholders in the form of a buyback. Mayer appears to be putting her foot down and changing that plan. Here's the requisite part that signaled a change in thinking.

As reported in our Form 10-Q for the quarter ended June 30, 2012 filed today with the Securities and Exchange Commission, Ms. Mayer is engaging in a review of the Company's business strategy to enhance long term shareholder value. As part of that review, Ms. Mayer intends to review with the Board of Directors, among other things, the Company's growth and acquisition strategy, the restructuring plan we began implementing in the second quarter of 2012, and the Company's cash position and planned capital allocation strategy. This review process may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase under the Share Repurchase and Preference Share Sale Agreement we entered into on May 20, 2012 with Alibaba Group Holding Limited.

Yahoo!'s largest shareholder may be on aboard. Third Point, run by hedge fund honcho Daniel Loeb, is Yahoo!'s largest institutional shareholder, with 5.77% of the stock, according to Thomson Reuters. Reuters reported that sources familiar with the Yahoo! board's thinking -- where Loeb is a director -- back Mayer's decision to reevaluate the cash position.

Yahoo! has had a number of CEOs over the past 12 months (Carol Bartz, Tim Morse, Scott Thompson, Ross Levinsohn and now Mayer), as well as a number of strategies. That's confused investors, and this change of plan may confuse investors even more. Barclays Capital analyst Anthony DiClemente said the development is "somewhat concerning." He noted a change in sentiment around Yahoo! recently, largely due to the positive buzz surrounding Mayer's hire and the buyback.

"However, given tonight's filing, we believe that concerns around a smaller-than-expected buyback could remain a headwind until investors get more clarity," DiClemente wrote in a research report. He rates Yahoo! equal-weight with an $18 price target.

Pivotal Research Group analyst Brian Wieser echoed those sentiments, suggesting investors take "a 'wait and see' approach." Wieser rated shares buy with a $19 price target.

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