Investors losing patience with Yahoo CEO Yang

Darren Bagwell, who helps manage $60 billion at Thrivent Asset Management, is frustrated with Yahoo Inc Chief Executive Officer Jerry Yang, the man he says is standing in the way of a payout from Microsoft Corp.

"I ran out of patience a long time ago," said Bagwell, whose Appleton, Wisconsin-based firm owned 1.5 million Yahoo shares as of Dec 31. "The majority of investors would prefer to see them trying to reach an agreement with Microsoft as opposed to looking for ways to fight them off."

Yahoo, operator of the No 2 Internet search engine, has deliberated for almost a month over how to counter Microsoft's $44.6 billion takeover offer and is now drawing lawsuits from shareholders including two Detroit retirement systems. After rejecting the purchase and talking with companies including News Corp, Yang has yet to reveal a strategy for Yahoo to remain independent and compete with bigger rival Google Inc.

Some investors say Yahoo's board is more focused on scaring off Microsoft than providing the best return. Yahoo last week adopted employee severance plans that would pay as much as two years of salary to fend off the $31-a-share bid.

The stock jumped 48 percent the day the offer came out and has fallen more than 5 percent in the past five trading days.

"If the deal goes south, the stock is going south as well," said Larry Haverty, who manages the Gabelli Global Multimedia Trust Fund at Gamco Investors Inc in Rye, New York, which owns Yahoo shares. Gamco managed $31.6 billion as of Sept 30.

"With Jerry Yang running the company, the value is $20 a share."

Yahoo spokeswoman Tracy Schmaler declined to comment and said the board is considering its options and committed to pursuing the best action for shareholders.

Yahoo has posted eight straight quarters of declining profit as Internet search users switched to Google.

Yahoo's share of US Web queries fell to 17.7 percent in December from a recent high of 24.3 percent in November 2006, according to New York-based Nielsen Online. The stock lost almost half of its value in the two years before Microsoft's offer was announced.

Company sued

Last week, the Police and Fire Retirement System of the City of Detroit sued Yahoo, claiming the Sunnyvale, California-based company is "pursuing all manner of value-destructive third party deals" while resisting Microsoft.

"The Yahoo board members have placed personal distaste for Microsoft ahead of shareholder welfare," the suit said. "The board's refusal to negotiate with Microsoft evidences an improper purpose to thwart any sale to this particular bidder."

Yang's failure to turn around the company he co-founded is hurting his ability to keep investors in line, said Michael Gartenberg, an analyst at JupiterResearch in New York. Since taking the top job in June, Yang hasn't unveiled bold plans or given investors a reason to give him more time, Gartenberg said.

"You have a lot of shareholders asking 'Jerry, what did you do for me lately?'" he said.

To get the deal moving, Redmond, Washington-based Microsoft may have to begin a hostile takeover to unseat the current board, Haverty said.

He expects that move will get the board to the table and allow the companies to agree on a price.

Microsoft, the world's largest software maker, said after Yahoo rejected the offer that it reserves the right to take any steps needed to get its offer before Yahoo shareholders.

"To just stick your head in the sand and pursue all these other options, none of which even come close to having the prospect of creating the type of value that Microsoft is offering, it's frustrating and it's maddening," Bagwell said.

Even after talks with News Corp, no plan has materialized, and some Yahoo shareholders say they won't back such an agreement because it leaves the current management in place.

The problem with such a deal is "you've got the same management team that essentially put the company in the position they are in", said Ken Smith, director of technology investment at Munder Capital Management in Birmingham, Michigan, which owned 1.9 million Yahoo shares as of Dec 31.

"It's hard to see Jerry Yang being the guy to lead this turnaround."

Agencies

(China Daily 02/26/2008 page17)