Mergers & acquisitions

Investors Question Yahoo's Spinoff Intentions

Yahoo's board, Yahoo management and some Yahoo investors have all recently hired consultants, as distrust and suspicion of each other escalates. The intrigue involved with the putative sale of Yahoo is beginning to look like the struggle for the Iron Throne in Westeros.

The Yahoo Inc. (Nasdaq: YHOO) board nominally put the company up for sale two weeks ago, and on Friday established a committee that will explore a possible sale of part or all of the company. Yahoo hired Goldman Sachs, J.P. Morgan and PJT Partners to broker meetings with potential buyers. (See Yahoo & Verizon Sitting in a Tree...)

But Yahoo's board also just hired Evercore and Innisfree MA, two companies that specialize in minimizing interference from activist investors. Yahoo investors -- Spring Owl Asset Management and Starboard Value notable among them -- have been agitating for Yahoo's breakup or sale.

Several of these investors simply don't believe that the Yahoo board is serious about selling, however. They suspect the board and CEO Marissa Mayer are using the sale process as a stalling tactic, to buy time for the latest version of Mayer's turnaround plans.

That distrust derives in part from the recent failure of the spinout of Alibaba.

Yahoo's biggest value is in its investments in Alibaba Group and Yahoo Japan. Investors have demanded that Yahoo sell either or both of those businesses for years. Yahoo was indeed on the verge of selling off Alibaba in December, but then the tax situation changed, making the action less financially appealing than it had been at the beginning of last year. (See Yahoo to Spin Off Web Business, Keep Alibaba.)

Starboard in particular was livid about the failed spinout; it published a lengthy rant excoriating the Yahoo board and Mayer.

Now that Yahoo has hired Evercore and Innisfree, investor distrust of Yahoo's intentions has been exacerbated. Starboard Value in turn has hired Okapi Partners, a company that specializes in drumming up support among other investors for the plans of dissident activists.

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Meanwhile, the committee that Yahoo created to explore a sale does not include Mayer. Tea-leaf readers are trying to interpret what that might mean.

Depending on your point of view, Mayer's absence from that committee could mean that a sympathetic board is inoculating her from having to be involved with the stalling tactic of the putative sale while she pursues the "Yahoo Turnaround Plot." Or it could mean that she's being isolated by an unsympathetic board because they don't believe she can pull off a turnaround before they have to sell.

That Mayer has reportedly hired her own personal advisor, Frank Quattrone, who has a reputation as a financial fixer, doesn't clarify the situation much, but it does suggest a keen awareness she's the focal point in the intrigue.

Whether the board is serious about selling or not, they will be reaching out to several companies to gauge their interest. Verizon Communications Inc. (NYSE: VZ) is explicitly interested. AT&T Inc. (NYSE: T), as the most direct rival to Verizon, will certainly be approached. Comcast Corp. (Nasdaq: CMCSA, CMCSK), another communications giant that has been enthusiastic about both the technology and the business of advertising, will be another certain contact. Others are likely to emerge as time goes on.

Without Alibaba or Yahoo Japan, Yahoo's core business could still be worth billions of dollars. Verizon laid out $4.4 billion for AOL last year.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

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