Editors' pick: Originally published March 24.
Yahoo! (YHOO) is firmly at war with hedge fund Starboard Value LP, as the fund led by Jeffrey Smith (pictured) is proposing to nominate nine members for Yahoo!'s board, effectively calling out the current board of directors.
In a letter to shareholders, Starboard, which owns around 1.7% or $570 million of the Sunnyvale, Calif.-based Yahoo!, has noted that the board, led by Chairman Maynard Webb and CEO Marissa Mayer, hasbeen ineffective and that it's time for a change.
"We believe that Yahoo is deeply undervalued and opportunities exist within the control of management and the board of directors to unlock significant value for the benefit of all shareholders," Smith wrote in a letter to shareholders.
Smith went on to complain that the board is incapable of turning the company around. "We believe the board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders."
Smith is proposing Bridget Baker, Tor Braham, Brad Buss, W. Lance Conn, Dale Fuller, Eddy Hartenstein, Rick Hill, Debra Janssen and himself to the board. In the letter, Smith outlined various reasons why he contends they would be more effective than Yahoo!'s current board, with media and technology experience being the main one."Shareholders do better when they get to choose who represents them on the board, rather than being force-fed management-vetted choices," said SpringOwl Asset Management Managing Director Eric Jackson in an email. " We look forward to hearing from both Starboard and Yahoo! now on why they deserve our vote and how they best plan to unlock the tremendous value that remains currently unrealized within Yahoo! after 4 years of waste and dithering."
Some shareholders, including SpringOwl, have previously taken issue with board members' lack of experience relevant to an Internet company, particularly one as vulnerable to the shifting changes in the advertising landscape as Yahoo!. The company announced in February that Charles Schwab, co-founder of the online retail brokerage house bearing his name, was stepping down from the board.
The Wall Street Journal was the first to report that changes may be coming put forth by Starboard.
Yahoo! has had an extraordinarily rough time appeasing shareholders with its turnaround plan. Mayer, who took over in the summer of 2012, said in the fall of 2013 that it would take around three years to get revenue moving in the right direction. With investors clamoring for her head three years later, Mayer and her team are still talking about needing a few more years.
"The management team and Board of Yahoo have repeatedly failed shareholders," Smith continued in the letter. "Time and again, operating results have been decidedly negative and materially worse than management's guidance and external expectations."