NEW YORK (
) -- Last week in
, I wrote
that was critical of a decision by new
CEO Marissa Mayer.
Mayer released an 8-K recently that said she might not return to shareholders any of the cash coming to the company from the pending $7.1 billion sale of half of Yahoo!'s stake in
Rocco Pendola wrote
saying I was being impatient and a pest.
First, Rocco described as "short-termist," "entitled" and focused on "instant gratification" my call for Mayer to follow through on Yahoo!'s past statement that it would pay out a large part of the proceeds from the Alibaba sale.
The company will get $4 billion after taxes from the sale by November, and it had telegraphed that most of this was going to go back to shareholders (although it never clearly defined "most," which would have allowed Mayer to dip into it for M&A purposes).
Importantly, Yahoo!'s also in the midst of selling its stake in Yahoo! Japan back to
. Mayer would know the current status of the talks, but they appear to be close. Assuming Yahoo! can close the deal in the next three months, the cash-rich split deal would see Yahoo getting $3 billion in cash back tax-free and $1.5 billion worth of "other assets" tax-free.
Those assets can be of Yahoo's (Marissa's) choosing. Essentially, that $1.5 billion in assets is an M&A deal. All this is selected before the deal is announced, and the cash and assets are available from day one to Yahoo! (although the IRS does have to officially bless the deal later).
So chances are high that Yahoo! could/will get its hands on the cash and assets from the Yahoo! Japan deal sooner than it will the cash from the Alibaba deal.
Therefore, it makes no sense that Mayer issued that recent 8-K. The company essentially is going to get $4.5 billion for M&A from Softbank sooner than it will get $4 billion from Alibaba.
In my view, using $4.5 billion for M&A and $4 billion for stock buybacks makes eminent sense. I probably would want to see more spent on buybacks, but it really all depends on the potential acquisition targets as there are many good ones out there. Assuming Mayer finds some good ones -- and her track record says that she will -- I could be convinced that $4.5 billion spent on M&A and $4 billion on buybacks was fair.
She therefore could have kept the company's previous promise, done the M&A she wanted to and actually done it all faster. All this, and she never would have had to issue the 8-K.
What did the 8-K accomplish that was so much better for Yahoo! employees and shareholders from a "long-term perspective?" It asserted that there's a new sheriff in town: Mayer. Is that long-term thinking or ego?
It allows Mayer to keep all her options open and not be hamstrung by the decisions that preceded her arrival to Yahoo!. But surely she would have been advised that there was going to be a negative reaction in the stock. Yes, but that's just a short-term thing.
One "insider" said in an article that "all the short-term investors in the stock will be disappointed by the news and then cycle out of the stock, but then the stock will stabilize and start to go back up with longer-term investors." Maybe. I've owned a position in Yahoo! since December 2010 and used the 10% drop in the stock price last week to add to my position.
But I don't really see this as a "long-term view" by management. It strikes me more as a very naïve view of markets. When I make a decision as a CEO today that's going to tank my stock by 10%, I need to see it rise 11.5% just to get back to even. I've dug a hole. I've made some of my bigger investors especially unhappy. I could accept that if this decision was really going to do something that creates some "long-term value" for shareholders, but as I stated above, that isn't obvious at all.
Mayer was on a roll since her hiring. Employees loved her and still do. Investors were happy, and the stock had ticked up from $15 to $16. I guarantee you that if the stock had gone to $18 or $20, Mayer would have had
from investors to do whatever she wanted.
Technically, she still has that freedom from her board, but she's got grumpy investors who again see no reason for why she did what she did. She could have had her cake and eaten it too, simply by getting the Softbank deal closed and having all this new cash come in from Softbank and Alibaba.
So, this brings me to Rocco's criticism that I should just shut up and enjoy the ride with Mayer at the helm. And he invokes the spirit of Steve Jobs : "Ask Steve Jobs: shareholders are pests." So, I should quit being a backseat driver here.
I have a big problem with this.
CEOs and boards make better decisions when they know informed shareholders are watching over their shoulders. It's called accountability. And guess what, it works for humans too. When we know we will be judged on our decisions, we think a little harder and -- usually -- make a better decision as a result.
Would the financial markets be a better place if shareholders just shut up and didn't trouble management with their opinions? I think we tried that in the middle of last decade with all the banks leading up to the financial collapse. How did that work out for all of us?
Of course, shareholders are going to have their share of boneheaded ideas, just like any CEO, director or engineer. Management shouldn't shift to accommodate every shareholder opinion. But CEOs make better decisions when more shareholders speak up, not fewer.
So, I'm not going to shut up. I'm going to keep giving pats on the back to Marissa when she deserves it and criticizing her -- fairly, I hope -- when I think it's warranted. (And, Rocco, show me exactly in my original post where I discounted "Mayer's attempts to restore employee morale, focus on products and position Yahoo! for the long term.")
It's as silly to talk about Steve Jobs and insist that shareholders are always wrong as it is to say that CEOs are always right. Can you imagine if someone told me a few months ago, "Hey, how can you criticize Scott Thompson? He's the CEO. Don't you remember what Steve Jobs said about shareholders? You should just shut up and enjoy the ride on the S.S. Thompson because this thing is going to be a rocket ship to the moon!"
I'm a believer that people can walk and chew gum at the same time. It is possible to make decisions that are right for the company in the long term without needlessly causing the stock to drop 10% within a few days.
I'm still very confident that Marissa Mayer is the right choice for CEO of Yahoo! and will be very successful in the short term
the long term.
In the meantime, I hope all shareholders will continue to voice their opinions about decisions that their CEOs are making on their behalf. Whether their opinions are helpful or not, they'll lead on balance to a much stronger and more accountable culture for executives and boards.
At the time of publication, Jackson was long YHOO
Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson