Bloomberg News

Yahoo Surges After Chairman Ousts CEO With a Phone Call

September 07, 2011

(Updates share price starting in second paragraph.)

Sept. 7 (Bloomberg) -- Yahoo! Inc. surged after firing Chief Executive Officer Carol Bartz, whose reign was marked by falling sales, lost share to rivals and a dispute with Asian partners that stunted growth in the world’s largest Web market.

Bartz said in a memo to staff yesterday that she was terminated by Chairman Roy Bostock by telephone. The Sunnyvale, California-based company announced a strategic review aimed at helping revive growth at the most-visited U.S. Web portal, and said Chief Financial Officer Tim Morse will be interim CEO. The shares rose 5.4 percent.

Under Bartz, 63, who took over as CEO in January 2009, Yahoo has frustrated investors and failed to keep Google Inc. and Facebook Inc. from siphoning off Internet users and advertising revenue. The management change and strategy overhaul may result in a sale of the company, said Jordan Rohan, an analyst at Stifel Nicolaus & Co. in New York.

“After all of the drama of the Bartz administration, we think the Yahoo! board of directors may be more receptive to a deal now than it has been in the past,” Rohan said in a note to clients today. The best-case scenario for Yahoo would be a sale to private equity, which could be done at a price of about $18 to $20 a share.

An outright sale to a media company such as News Corp. is also possible, said Youssef Squali, an analyst at Jefferies & Co. in New York, in a research report today.

Sale Before New CEO

“It is more likely that the board reaches an agreement to sell the company or parts of the company before a new CEO is found,” Squali said.

Since Bartz took the reins from co-founder Jerry Yang, Yahoo’s stock gained 6.7 percent in U.S. trading, compared with a 34 percent increase for the Standard & Poor’s 500 index through yesterday. Today, the stock rose 70 cents to $13.61 on the Nasdaq Stock Market.

“I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s chairman of the board,” Bartz said in a memo sent to staff. “It has been my pleasure to work with all of you and I wish you only the best going forward.” Bostock, who helped recruit Bartz, declined to comment.

As CEO, Bartz slashed costs with job cuts and a search partnership with Microsoft Corp. Still, Yahoo failed to make much headway in the U.S. advertising and search markets. Bartz also rankled investors with her handling of assets in Asia, including a stake in Alibaba Group Holding Ltd. and Yahoo Japan Corp. that may be worth more than Yahoo’s market value.

The management change and strategic review may pave the way for Yahoo to sell the stake back to Alibaba -- a transaction favored by Alibaba and opposed by Bartz.

‘Deal Maker’

“You could bring in someone who’s a deal maker, who can potentially make the peace with Alibaba and unlock a lot of value for shareholders that way,” Ross Sandler, an analyst at RBC Capital Markets, said.

Analysts were disappointed with Bartz’s resolution of a four-month dispute over how to compensate investors after Alibaba transferred ownership of its online payments business to a company controlled by Alibaba Chairman Jack Ma.

The move diminished the value of the holding and added to pressure on Bartz, said Laura Martin, an analyst at Needham & Co.

“Jack Ma did not help her,” said Martin, who is based in Pasadena, California. Moving Alipay took away “a piece of the value” of Yahoo’s Asian assets and “was probably the nail in the coffin,” she said.

Private Equity

A new structure involving investment from private equity and Microsoft, AOL Inc. or Alibaba could happen as part of the strategic changes at Yahoo, Squali said.

Yahoo’s share of the U.S. online ad market is projected to drop to 9.7 percent next year from 16 percent in 2009, according to New York-based research firm EMarketer Inc. Google’s may increase to 45 percent, while Facebook may more than triple its portion to 7.8 percent, EMarketer predicts.

Yahoo reported second-quarter revenue in July that fell short of estimates as Bartz’s overhaul of the U.S. sales force made it harder to close deals and slowed growth in display advertising.

“Some of the issues have been company-specific problems that have been under her watch,” said Sandler at RBC Capital Markets. “The slowdown in their display business is simply from her inability to keep the display team together over the last 18 months,” said Sandler, who rates Yahoo “outperform” and doesn’t own the stock.

Bartz was recruited to revive growth and combat the Google threat after Yahoo rebuffed a $47.5 billion takeover attempt by Microsoft in 2008.

Wisconsin Farm

Raised by her grandmother on a Wisconsin farm, Bartz cut her management teeth as CEO of San Rafael, California-based Autodesk Inc. for 14 years. There, she was credited with turning around the design software maker’s sagging performance and gained allies including Cisco Systems Inc. CEO John Chambers, on whose board she sits. She also served as an executive at Sun Microsystems Inc., Digital Equipment Corp. and 3M Co.

Bartz also became known for tough, frank talk and occasional use of obscenities during interviews with critics and the media.

Executives who left under Bartz include Hilary Schneider, the former executive vice president in charge of the Americas region, senior vice presidents David Ko and Joanne Bradford, and vice president Jimmy Pitaro.

“There could be a groundswell of people within Yahoo that are totally dissatisfied,” said Allen Weiner, research vice at Gartner Inc. in Austin, Texas. “One way of stopping the bleeding, the exodus of major people, is to find that she is the root of the problem.”

‘Without Cause’

Bartz’s termination is considered “without cause,” and the company plans to fulfill the severance terms of her contract, according to a person familiar with the board, who asked not to be identified because the agreement was confidential. Yahoo isn’t paying Bartz any additional compensation after ending her contract early, the person said.

Yahoo will hire a search firm to help find a permanent CEO. The company hasn’t hired bankers or other outside advisers to explore a potential sale of its assets, according to the person close to its board.

The technology website AllThingsD initially reported Bartz’s ouster.

--With assistance from Brad Stone, Cory Johnson and Brian Womack in San Francisco, Mark Lee in Hong Kong, and Simon Thiel in London. Editors: Tom Giles, Lisa Rapaport

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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