NEW YORK (
) -- Being a
shareholder sometimes feels like being a punching bag.
With the surprise hiring a few weeks ago of ex-
executive Marissa Mayer, it seemed like shareholders had finally caught a break.
Although there wasn't an immediate pop in the stock price, it steadily started moving up from $15 to near the important technical level of $16.35 late last week.
And then Yahoo! released an 8-K saying the company was reserving the right to not share substantially all of the proceeds from the $7.1 billion sale of its
stake with shareholders when the deal closes by November. Since then, Yahoo!'s stock has dropped from more than $16 to $14.70.
The coverage since that announcement has been interesting. Shareholders who have a vested interest in seeing the stock go up have been understandably disappointed by the move -- as they, rightly, worry that some M&A spree will quickly vaporize all that incoming cash.
Yet, many in the business or tech media have been supportive of Mayer's move, saying that, if Yahoo! is going to recreate itself, it needs to rebuild itself, and acquisitions are going to be more helpful to do that than financial engineering like buybacks or dividends.
I think that's right to some degree. Personally, I've always been most supportive of a combination of buybacks and M&A as a use of cash for monetizing the Alibaba and
However, most of these media folks are being a little naive when they applaud Mayer for having the courage to do the right thing in the long term by rebuilding Yahoo! through acquisition. And don't forget: Probably none of these commentators own Yahoo! stock.
As a longtime Yahoo! shareholder, I've heard Yahoo!'s management and board promise that they are doing things to increase "long-term shareholder value" for more than six years! But if they keep destroying shareholder value, they should just say, "Be patient... we need more time!"
The truth is that Yahoo! can make dumb capital allocations if management thinks from purely a financial engineering perspective (like doing a special dividend a la
) or from a long-term growth perspective (like M&A). But management can also make wise choices.
But given the 10% drop in Yahoo!'s stock in a few short days, this decision by Mayer to put out that 8-K is her first big mistake -- and a sign of her inexperience as a CEO. As Kara Swisher said today, one investor described now being in "Marissery."
Mayer probably thought she was sending a strong message to employees and shareholders that she's in charge now and will do what she thinks is necessary to create long-term shareholder value, including making a big acquisition.
After all, her board made the promise to return capital before she arrived and then told her she'd have full control and lots of time to turn around Yahoo! She's also taken down Yahoo!'s stock price from its internal employee intranet homepage.
Some in the media cheered this as a sign that she's all about being product-centric instead of stock price-centric.
But why did she have to release this 8-K
? There's presumably going to be money coming in from a Yahoo! Japan stake sale. Such a deal is also rumored to be involving a cash-rich split, which means, by definition, Yahoo! will get a bunch of assets of its choosing (worth at least $1.5 billion) in addition to $3 billion in cash.
And she could also cull the bloated head count. Both of those actions would have given her ample ability to go out and do deals if she wanted to in a fairly short amount of time -- without touching the shareholders' promised money from the Alibaba deal.
Sometimes people in the Valley get a little disconnected from Wall Street. The Valley elites look down at the Wall Street elites thinking one creates real stuff and the other just makes money off it.
But, let's get real. Like it or not, shareholders are as critical a stakeholder group to Yahoo!'s future as its own employees.
I could argue that if Mayer did a better job of getting shareholders on board -- increasing the stock price by 10% instead of dropping it 10%, as it did in the last few days -- her life and all the grand plans she probably has for turning around the company would be a lot easier than it is today.
She's got Dan Loeb as her biggest shareholder and advocate on her board. Dan knows what investors want to hear.
I'm not saying one stakeholder group matters more than another. That's certainly not true. I'm just saying that all stakeholders matter and need to be cared for and nurtured to maximize the company's long-term success.
It's certainly still early days for Mayer, and there are lots of opportunities in front of her to win back the trust of shareholders. I continue to be excited with the new products she'll nurture and the deals she'll make.
However, she needs to understand clearly that this 8-K was a bungle of the highest degree. Hopefully, she'll learn from it.
At the time of publication, Jackson was long Yahoo!
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.
Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.
He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.
You can contact Eric by emailing him at firstname.lastname@example.org.