Yahoo Rebuffs Loeb. How Will Yahoo’s Stock React?

Yahoo announced on Sunday that it has appointed three new independent directors: John D. Hayes, Executive Vice President and Chief Marketing Officer of American Express Company; Peter Liguori, former Chief Operating Officer of Discovery Communications, Inc. and former Chairman and President of Entertainment of Fox Broadcasting Network; and Thomas J. McInerney, the outgoing Chief Financial Officer of IAC/InterActiveCorp. Further, outgoing Chairman Roy Bostock in a pretty much direct appeal to shareholders made the case that Yahoo’s new management and Board of Directors should be given the benefit of the doubt in the upcoming proxy battle

“Yahoo! is moving aggressively to increase shareholder value. We have appointed a capable and dynamic CEO who is driving the business towards its next era of success. And we have reconstituted the Board of Directors with the right mix of experience and expertise to help Yahoo! build upon its very strong assets and brand base to take advantage of the opportunities ahead.”

So what does this mean to Yahoo’s share price?

Clearly this move by Yahoo is meant to appease shareholders who may be sympathetic to Dan Loeb who is waging a proxy battle against the company in a bid to install 4 of his nominees – including himself. It is clear that Yahoo today is not the same Yahoo of three months ago and the message to shareholders is that the current Board has implemented drastic changes and it should be given the benefit of the doubt in the upcoming proxy vote given that 1) both Jerry Yang and Roy Bostock have already stepped down – or will be shortly – and 2) Yahoo has a new CEO in Scott Thompson, and 3) the addition of the 3 new independent directors with impressive resumes. Given those three reasons I stated, it is hard for Loeb to make an argument that Yahoo has not reacted to shareholders’ grievances. (whether you think the moves are good or not). It is also foolhardy not to believe that many institutional investors will be swayed by these moves and will agree to give Yahoo the benefit of the doubt.
So, if your investment thesis in Yahoo is based on that Dan Loeb will win the proxy battle, implement a new strategy, and drive the share price up then that thesis has been dealt a severe blow. The chances of Loeb winning the proxy vote have decreased markedly today. If this logic is true then Yahoo’s share price will likely decline between now and Yahoo’s annual meeting.

Since former CEO Carol Bartz’s departure, Yahoo’s share price has been steadily increasing on the prospects of a sale of all or part of the company. The prospects of such a sale have cooled off since the appointment of new CEO Scott Thompson. If Yahoo’s slate wins the proxy vote, Thomson will have an accommodating Board that will be supportive of his vision and strategy. This vision and strategy is yet to be clearly communicated to shareholders and thus it is not a reason why Yahoo’s shares have been increasing or holding the $14-$16 level. The support we have seen in Yahoo’s shares has been based on more upcoming change if Loeb wins. Take that last part out and the only thing supporting Yahoo’s share price is the ever diminishing near term prospects of the Asian assets divestment. As I have mentioned before, Yahoo’s share price will increase when shareholders are excited about Scott Thomson and his strategy for Yahoo. Until then Yahoo is dead money.

Disclosures: No Positions in Yahoo

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