Analyst Sameet Sinha in “Portals Battle Activist Investors” with Adweek

Yahoo, AOL activist investors call for board shake-ups

By Tim Peterson

An embattled CEO like Yahoo’s Scott Thompson or AOL’s Tim Armstrong isn’t likely to welcome a proxy fight. But maybe they should.

B. Riley analyst Sameet Sinha said proxy fights­—when investors try to use their clout to get public companies to take specific actions—are “inevitable” for Web 1.0 firms like AOL and Yahoo that have valuable assets but slow-moving management.

Enter Yahoo’s largest outside shareholder Third Point and one of AOL’s largest, Starboard Value. In proxy documents, the activist investors have called for shake-ups of the respective companies’ boards, with Third Point and Starboard each offering up their own nominees. The proxy battlers “have the most impact if they actually get elected to the board. Right now all they can do is write letters,” said Needham & Co. managing director Laura Martin.

Yahoo and AOL can’t afford not to respond to those letters, else they risk looking tone deaf, said Sinha.

The companies, however, are handling the activists’ nominees differently. Per Starboard’s suggestion, AOL orchestrated an essentially tax-free $1.06 billion patent sale to Microsoft. Meanwhile, Yahoo extended an olive branch to Third Point, offering two board seats to the investor’s nominees, but it demanded four and declined the offer; there’s been little progress made since.

Wall Street’s taken notice. “AOL has been taking the advice of its proxy battler, and the stock’s up $10 since the proxy guys entered,” said Martin, adding that Yahoo’s stock has stayed relatively flat.