Yahoo! Inc. (YHOO:US) director and activist investor Daniel Loeb is leaving the board and selling $1.16 billion of his stake back to the company, capping an almost two-year effort to revamp the Web portal.
Yahoo will repurchase 40 million shares at $29.11 apiece from Loeb’s Third Point LLC, leaving him with about 20 million shares, or less than a 2 percent stake, the Sunnyvale, California-based company said today in a statement. Loeb’s allies on the board, Harry Wilson and Michael Wolf, are also stepping down, leaving Yahoo with seven directors.
Loeb became a director in May 2012 in a shakeup tied to the ouster of former Yahoo Chief Executive Officer Scott Thompson over inaccuracies on his resume. The shares have almost doubled since Loeb joined the board and helped bring in Google Inc. executive Marissa Mayer as CEO. His departure today prompted a drop in the stock as some investors speculated Loeb may see limited upside to Mayer’s turnaround plan.
“When a savvy investor with an inside view via three board seats sells two-thirds of his stake and leaves the board, it’s a sign that he thinks the stock is as high as it’s going to be in the foreseeable future,” said Erik Gordon, a business professor at the University of Michigan.
Loeb’s Third Point made $665 million today, leaving his hedge fund with a 129 percent return on its initial stake. That doesn’t include gains on the shares Third Point still owns or on stock Loeb previously sold.
Yahoo shares fell 4.3 percent to $27.86 at the close in New York, the biggest decline since June 24. The stock has advanced 40 percent this year, compared with a 19 percent gain for the Standard & Poor’s 500 Index.
One year into her tenure, Mayer remains in the early stages of a turnaround centered on creating new products aimed at luring consumers and advertisers from Google and Facebook Inc. Much of Yahoo’s gain in the past year was driven by the appreciation of its stake in Chinese e-commerce company Alibaba Group Holding Ltd., according to Brian Wieser, an analyst at Pivotal Research Group LLC.
“Alibaba is the only thing that’s going well for Yahoo right now,” Wieser said in an interview.
When Loeb joined the board last year, Third Point had been locked in a dispute with Yahoo about its management, faulting Thompson for cutting jobs before he articulated a complete turnaround strategy. Loeb’s criticism of Yahoo dates back to at least September 2011, when Third Point bought a 5.2 percent stake and urged the board to resign.
“Daniel Loeb had the vision to see Yahoo for its immense potential-- the potential to return to greatness as a company and the potential to deliver significant shareholder value,” Mayer said in the statement.
The stock repurchased from Third Point will be part of Yahoo’s previously announced $1.9 billion buyback program. Upon completion of the transaction, about $700 million will remain under the $5 billion repurchase authorization announced last year, Yahoo said in the statement.
The board resignations are effective July 31, Yahoo said. The departures were part of an agreement the company reached with Loeb last year, Yahoo said.
While Loeb’s eventual exit from the board was expected, “the timing of Loeb’s departure is a surprise,” said Victor Anthony, an analyst at Topeka Capital Markets, who has a buy rating on the shares. “It may signal there’s no more upside to the stock -- why would he sell if he thinks there’s an upside?”
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