Starboard Letter to Yahoo

Yahoo logoHaving finished lambasting Olive Garden, Starboard is onto Yahoo. A managing member of the hedge fund wrote a letter to Yahoo CEO Marissa Mayer with this stated purpose: "to highlight several opportunities to unlock tremendous value for the benefit of all Yahoo shareholders." He summarizes the opportunities as follows:

  1. Unlocking the substantial value from Yahoo's non-core minority equity stakes in Alibaba Group Holding Limited ("Alibaba") and Yahoo Japan in a structure that delivers value directly to Yahoo shareholders in a tax-efficient manner;
  2. Realizing substantial cost efficiencies by reducing expenses throughout the Company, specifically with a goal of reducing losses in the Display business by between $250 and $500 million;
  3. Halting Yahoo's aggressive acquisition strategy which has resulted in $1.3 billion of capital spent since Q2 2012 while consolidated revenues have remained stagnant and EBITDA has materially decreased; and
  4. Exploring a strategic combination with AOL, Inc. – a company we know well – which could improve Yahoo's competitive position, deliver cost synergies of up to $1 billion, and potentially facilitate the realization of value from Yahoo's non-core equity stakes with minimal tax leakage.

The recommendation to partner with AOL is perhaps the most dramatic. Mayer responded in a statement:

"Going forward, we have great confidence in the strength of our business. The management team and the board of directors remain committed to building value for all shareholders through the continued execution of our strategy, investing in products that will drive sustainable growth: search, communications, digital magazines and video.

"We will continue to focus on evaluating various capital allocation initiatives, an update to which we plan to provide on our third-quarter earnings call."

Discussion Starters:

  • Read the letter for tone. It's a jargon- and cliche-filled masterpiece, but is it appropriate for the context and audience?
  • Read the letter for content. What are the most and least persuasive arguments? How does Starboard position itself?