Daniel Loeb’s Yahoo exit hurts investors twice over. The Internet company is buying back two-thirds of the hedge fund mogul’s stake, owned by his firm, Third Point, for $1.2 billion. That sucks up most of the cash Yahoo reserved for repurchases. It also heralds the departure of three Third Point-approved directors, robbing Yahoo of some much-needed advisers.
Yahoo has certainly benefited from Mr. Loeb’s involvement. When he first bought shares in the fall of 2011, the company had a dysfunctional board with the co-founder Jerry Yang acting as dictator for life. Nearly all the company’s value was trapped in Asian assets while the company steadily lost market share in search.
Mr. Loeb’s entrance led to a wholesale upending of the board. Only two directors who served in 2011 remain. Mr. Yang, who played a key role in torpedoing a $45 billion offer from Microsoft in 2008, is gone. The company raised $4.3 billion from selling a chunk of its Asian holdings and agreed to use $3.65 billion to buy back stock.
Mr. Loeb played a key role in firing Yahoo’s chief executive at the time, Scott Thompson, and in hiring Marissa Mayer. At the very least, her abilities and presence have excited investors and Silicon Valley. Yahoo’s share price has roughly doubled since Mr. Loeb’s involvement.
And the deal Mr. Loeb has secured looks pretty sweet. Yahoo is buying his shares at July 19’s closing price, guaranteeing liquidity without forcing Third Point to pay a discount, as usually happens when an investor offloads a large chunk of stock. Yahoo fell as much as 4 percent on the news.
The only ones missing out are regular shareholders. Their stock has been shunted to the back of the buyback line. Nor are there any obvious candidates on the board to take on Mr. Loeb’s role either as a restraint on Ms. Mayer’s ambitions or as an advocate for proper capital allocations.
That’s important because it’s still not clear Yahoo can turn its Internet business around without lots of deal-making and spending - last week the company trimmed its 2013 sales outlook, for example. Without proper oversight, that could destroy some of the very value Loeb has just cashed in on.
Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
