Friday, March 25, 2016

The unboring board meeting (activist director slate directed at Yahoo)

You've probably read the textbooks about how businesses are governed. All public businesses are run by the shareholders, who have the power to elect a Board of Directors, who has the power to select the people who actually run the company.

The reality is often quite different. The starkest example occurred during Michael Eisner's years running Disney, when he populated Disney's board with his kids' schoolteacher, his maid, the guy who trimmed his meat at the deli, and Justin Bieber. Actually, that's a lie; Bieber probably wasn't even born yet. But you get the idea; insiders often secure control over the company's Board of Directors, ensuring that they can do whatever they want without being stopped. Since people like to vote for incumbents (bold prediction: at least some of the 435 members of the U.S. House of Representatives will be re-elected - again), shareholders tend to keep the company's preferred slate of directors on the board.

Not that activist shareholders don't stop trying. The latest salvo is over the Board of Directors at Yahoo. Starboard Value LP, which holds 1.7% of Yahoo's shares, has announced its intent to nominate a slate of directors to replace the ENTIRE board. Excerpt from Starboard Value's press release:

We believe that Yahoo is deeply undervalued and opportunities exist within the control of management and the Board of Directors (the "Board") to unlock significant value for the benefit of all shareholders. Unfortunately, as we have outlined in previous letters, we have been extremely disappointed with Yahoo's dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability and oversight by the Board. We believe the Board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders.

To that end, we will be delivering to Yahoo today a formal nomination notice of our intention to seek the election of nine highly qualified director nominees at the 2016 Annual Meeting. These nominees have been carefully vetted and selected following a several-month long process that included the evaluation of over 100 qualified potential candidates.

The way that Yahoo has been battered over the last several years, both before and after Marissa Mayer arrived, it is quite likely that THIS effort will... like most other efforts to wrest control of a company away from the insiders.

That's my prediction - which, given my track record, means that Starboard Value is guaranteed to win this fight.
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