Third Point’s planned proxy fight for four seats on Yahoo’s board grows more interesting by the day. Today the hedge fund’s CEO, Daniel Loeb, fired back at the company for refusing to accept two members of his dissident slate — media consultant Michael Wolf, and former NBCUniversal CEO Jeff Zucker — and especially Loeb himself. “You told me that the Board felt my experience and knowledge ‘would not be additive to the Board’ and that as Yahoo!’s largest outside shareholder, I would be ‘conflicted’ as a Director,” Loeb said in a letter to CEO Scott Thompson. Loeb says: “Only in an illogical Alice-in-Wonderland world” would that be said of someone who owns 5.8% of Yahoo’s voting shares, equal to about $1B. He notes that Thompson said Loeb might be too interested in policies that would generate a quick payoff. “This theory appears, seemingly like many of the Board’s conclusions, to have been arrived at by whimsy and emotion,” Loeb writes. “I have never been asked about this alleged short-term bias nor was there any evidence to indicate that our investment model is predicated on short-term trading…. In any event, this ‘long-term vs. short-term’ excuse is a canard and particularly inapt in the case of Yahoo!. If there ever was a company in need of a sense of urgency, it is this one.”
Yahoo said on Sunday that it would accept a fourth member of Loeb’s slate — corporate restructuring expert Harry Wilson — and someone else acceptable to both sides. Last month the company attacked Loeb’s “potentially disruptive” campaign “just as the Company is moving forward under new leadership to aggressively increase the value of Yahoo! for the benefit of all of its shareholders.” The fight comes as Yahoo struggles to chart a new course amid turmoil at the top with the firing last year of Carol Bartz as CEO and the resignation from the board of co-founder Jerry Yang. Its stock is down 8.1% over the last 12 months, and 15.6% over the last three years.
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Here’s Loeb’s letter:
As we discussed, Third Point LLC (“Third Point”), Yahoo!’s largest outside shareholder, was disappointed that you and the Board of Directors did not agree to the reasonable compromise we proposed regarding nominees to the Board.
We were pleased that the Board acknowledged that Harry Wilson would be a valuable Director. However, the way you treated our other nominees confirmed Third Point’s fear that the Board’s evaluation of our candidates would make a mockery of good principles of corporate governance. You will hear more on that from us in the future.
Our view of the nomination process is further reinforced by your explanation on Sunday as to why I would not be an acceptable Director. You told me that the Board felt my experience and knowledge “would not be additive to the Board” and that as Yahoo!’s largest outside shareholder, I would be “conflicted” as a Director.
Am I conflicted to advocate for the interests of other shareholders because we are owners of 5.8% (over $1 billion) of Yahoo! shares (unlike the non-retiring and proposed board members who have never purchased a single share of Yahoo! except for subsidized shares issued through option exercises and shares “paid” by the Company in lieu of fees)? Only in an illogical Alice-in-Wonderland world would a shareholder be deemed to be conflicted from representing the interests of other shareholders because he is, well, a shareholder too. This sentiment further confirms that Yahoo!’s approach to Board representation is “shareholders not welcome”.
When asked to explain this apparent “conflict”, you theorized that as a large shareholder, Third Point’s interest might be focused only on the short-term. This theory appears, seemingly like many of the Board’s conclusions, to have been arrived at by whimsy and emotion. I have never been asked about this alleged short-term bias nor was there any evidence to indicate that our investment model is predicated on short-term trading. On the contrary, a review of our record would indicate that we frequently hold positions for many years at a time (we have held our current position in Delphi Automotive since June 2008 and we held our Dade Behring position for nearly half a decade before it was sold to Siemens in 2007, as just two examples of many long-term investments). In any event, this “long-term vs. short-term” excuse is a canard and particularly inapt in the case of Yahoo!. If there ever was a company in need of a sense of urgency, it is this one.
Was it “short-term” thinking that led Third Point to push for the resignations of Jerry Yang, Roy Bostock, Arthur Kern and Vyomesh Joshi? If so, is there a Yahoo! shareholder on the planet who thinks this “short-term” thinking was bad for the Company? Was it “short-term” thinking that led Third Point to speak up for shareholders by questioning the fairness of the attempt by the Company to give away control to private equity funds – without receiving a premium – to entrench Roy Bostock and Jerry Yang? Or to suggest, as Third Point has, that the Company’s stake in Alibaba is more valuable than generally understood, and that the Company should hold on to it unless it can get fair value? Was it “short-term” thinking to point out the lack of media and advertising expertise on the Board and nominate extraordinarily qualified nominees to fill that gaping hole?
To the contrary, an unbiased observer might find Third Point’s thinking quite “additive”. Third Point has been a driving force standing up for shareholders since we disclosed our position in Company shares in September. In fact, the Company’s own actions are inconsistent with your assertions, since Yahoo! has adopted many of our recommendations.
At the risk of beating a dead horse, we suppose that, by the Board’s analysis, it would have been this dreaded “short-term” thinking to have allowed Microsoft’s $31 per share offer four years ago to be presented to shareholders.(1) The real issue is not short-term versus long-term but about Board representatives who have skin in the game and will exercise sound business judgment.
By seeking four seats, Third Point does not look to control the Board, and any individual voice in the room would be only one of 11 or 12. If one director has too “short-term” an approach for other members, a healthy debate will ensue and all directors as a group will decide the issue in a fully informed and deliberative manner. It is absurd to assert a “conflict” that would render a Board Member unqualified based either on ownership or a sense of urgency to repair a company that has been – by your own admission – languishing for years.
We remain willing to engage further with you but will not deviate from our demand for badly-needed shareholder representation.
Daniel S. Loeb
Chief Executive Officer
Third Point LLC
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