Starboard Value, an activist hedge fund, has upped the ante in its battle with struggling tech giant Yahoo by demanding that its board make leadership changes – specifically that it replace its chief executive, Marissa Mayer, who is one of the most high-profile women in American business.
In a letter to Yahoo, Starboard’s Jeffrey Smith claims that “investors have lost all confidence in management and the board… to be successful, dramatically different thinking is required together with significant changes across all aspects of the business, starting at board level and including executive leadership”. Starboard has threatened to force a shareholder election to oust the board if it does not “accept the need for significant change”.
Ms Mayer, who has been paid approximately $40m (£27m) a year since joining Yahoo from Google in 2012, has come under increasing pressure in recent weeks. In comparison to many of its tech peers, Yahoo is increasingly valued as a proxy for two of its investments, Yahoo Japan and Alibaba, rather than as a stand-alone business.
In particular, its investment in Chinese online retail giant Alibaba has been difficult to unwind. What started out in 2005 as an investment that might save Yahoo has turned into a millstone around its neck, worth many billions more than Yahoo invested in it, but tied up in such a way that releasing its value would result in a huge tax bill.
Ms Mayer promised to float the Alibaba stake last February, but the IRS declined to give Yahoo favourable tax status, resulting in stalemate and increasing calls for alternative strategies. The company officially abandoned plans to float the stake in December.
Starboard, which started accumulating its stake in Yahoo in November 2014, has not held back in its criticism, although before now it has not explicitly called for Ms Mayer’s replacement. In November it wrote to Yahoo’s board suggesting that rather than float Alibaba, it might be better off selling its core internet business, a business that has struggled in the face of competition despite investing millions in news and advertising platforms.