Technology, Yahoo

Yahoo Reaches Agreement with Starboard

Chief Executive of Yahoo Inc., Marissa Mayer will be forced to work toward the sale of the struggling web business by a shakeup of the company’s board, alongside activist investor and her strongest critic, Starboard Value LP. On Wednesday, the company announced that it had reached an agreement with Starboard and it would be adding the investor’s Chief Executive Jeffrey Smith and three of their director nominees to Yahoo’s board. Mr. Smith will also become part of the independent committee at Yahoo, which is responsible for the auction process of the firm. The board will have a total of 11 directors as two of the current directors on Yahoo’s board have no intention of seeking re-election.

This truce with Starboard has smoothed the path to find a buyer for the core businesses of the Sunnyvale, California company and figuring out how to deal with the firm’s rich stake in Yahoo Japan and Alibaba Group Holding Ltd. A proxy battle is avoided by Yahoo in this way, which could have led to the replacement of its full board during the auction process. However, by giving four board seats to Starboard, Yahoo has given an activist investor considerable power and they already have a track record of pushing for changes at different level of companies.

Some examples include the merger of Office Depot Inc. and Staples Inc. to how breadsticks are served at Olive Garden owned by Darden Restaurants Inc. A separate win was scored by Starboard on Wednesday with a deal to get four seats on the board and also head the search for a new CEO at Marvell Technology Group Ltd, the ailing chip maker. A central role will be played by Starboard’s directors at Yahoo in overseeing the auction. Previously, Mr. Smith had expressed concerns that Yahoo wasn’t moving the auction process quickly because it wasn’t open to selling.

Now, he will have a seat on the independent committee that will be leading this process. This month, the field of suitors for Yahoo got narrower to a handful of bidders after dozens of players had expressed their interest in the preliminary round. The leading candidate is Verizon Communications Inc. and it saw a boost in its chances as various potential buyers such as AT&T Inc., Time Inc. and Barry Diller’s IAC pulled out before the deadline for preliminary bids in the previous week. Private equity firms are also interested in making a bid to buy Yahoo.

Bids were submitted by TPG and an investor group had also made a bid, which included Vista Equity Partners, Bain Capital and Ross Levinsohn, the former CEO at Yahoo. The settlement by Yahoo with Starboard is going to ease some concerns of potential buyers who were worried that shareholder angst was going to jeopardize their bids. Lawyers and bankers said that the bidding process would become uncertain due to Starboard’s presence, but it would also keep the company under pressure. Ms. Mayer used the term ‘constructive resolution’ for referring to their agreement with Starboard. 

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