March 28, 2016

Yahoo’s latest battle in a long war of economic and internal struggles

Starboard moved to nominate its candidates for an entirely new board of directors at Yahoo.

New trouble is on the horizon for Yahoo. Starboard Value, a hedge fund known for activism that owns 1.7 percent of the company, recently made moves to nominate its own candidates in an effort to remove the entire existing Yahoo board of directors. Yahoo has been struggling for years, a challenge that has recently come to a head with the fight for online advertising with Alphabet Inc. and other major industry players, according to Reuters.

What does Starboard want?
Starboard's CEO Jeffrey Smith wrote a letter to Yahoo's shareholders following Verizon's hesitance to buy out the struggling multinational technology company. Citing that Starwood has been "extremely disappointed with Yahoo's dismal financial performance," Smith wrote that current problems facing Yahoo, such as CEO Marissa Mayer and slow moves to sell the company's core Internet business, are barriers to future buyout prospects.

"This is why we believe it is critical to elect a new Board that would provide much-needed credibility to a process that has been publicly criticized repeatedly for being too slow, fraught with conflicts of interest, and very difficult for highly qualified and motivated strategic and financial buyers to access much needed diligence information," Smith explained in his letter.

Smith, himself, is one of the newly proposed nine board members. SF Gate reported that other candidates include a former NBCUniversal executive, a former CEO at semiconductor firm Novellus Systems and a former president of Vulcan Capital and AOL executive. These proposed candidates will pit themselves against current board members for the annual election process where shareholders will vote for new board members.

Struggles with Mayer and online advertising
When Mayer was first elected CEO of Yahoo in 2012, Fortune reported that Marc Andreessen, a widely successful investor, advised Mayer to cut the 18,000 workforce by 10,000. Instead, Fortune explained that Mayer implemented performance reviews to cut away at her workforce each year instead of making initial cuts, causing significant drops in company morale.

In addition to low company morale, Mayer spearheaded company efforts to purchase and create various platforms and services in an effort to boost Yahoo's dwindling revenue stream. One of these high-profile acquisitions, blogging site Tumblr, cost Yahoo $1 billion and eventually failed to meet its mandated $100 million revenue goal. Many of Tumblr's head salespeople and other team members have left the company as a result of a failed integration of Tumblr's sales team with Yahoo's core team.

"The whole process just pulled the rug out of all momentum," one former Tumblr employee told Business Insider. "The decision was made without a full immersion plan."

As a result of its problems with Tumblr, Yahoo is currently discussing the possibility of Facebook selling advertisements within its mobile application to boost revenue. According to The Information, only around 10 to 15 percent of the blogging platform's available ad space is being sold. One of the main problems for Yahoo's failed plan to boost advertising is that Yahoo's primary advertising base is older, while the blogging site appeals to a younger audience.

"We were distributing Tumblr sponsored posts across Yahoo content in their native stream, but very few advertisers actually wanted it because it's a different audience," an inside source told Business Insider. "And the content on Tumblr was very different from the content on Yahoo."

If the new board is instated at Yahoo, the company could look dramatically different by next year.

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