By Jonathan Chen
Yahoo's (YHOO) board may have screwed up again.
After rumors surfaced last week that the company was thinking about launching a share buyback and dividend to appease investors, as opposed to selling the company, Wall Street started to punish the stock. Benzinga spoke to Yahoo about the rumors, and the spokesperson said, "Yahoo does not comment on rumors or speculation."
Tuesday morning, Wall Street sent the stock down 10%, as it appears the board of directors screwed up again. Instead of selling the company, the Sunnyvale-based company announced it was buying interCLICK (ICLK) for $9 per share.
There are rumors out of Yahoo that the company may sell its Asian assets, Yahoo Japan and its 39% stake in Alibaba (OTC:ALBCF), as opposed to going private. If this is true, then the Yahoo board of directors, as noted first by Third Point's Dan Loeb, is a bunch of "clowns."
To make this kind of egregious mistake again means the board of directors needs to be replaced entirely, including company co-founder Jerry Yang. Yang has come out in recent days and said that the company is not just considering a sale, that Yahoo has other options, including the tax-free sale of its Asian assets.
The board of directors' ultimate responsibility is to shareholders, and it has screwed up twice in a span of three years. First it made the mistake of not selling out to Microsoft (NASDAQ:MSFT) for $33 per share in 2008. Yang, Roy Bostock, and the rest of the board wanted more money, which never came. Then the financial crisis started, shares went down into the low single digits, and as of today have not come close to reaching the Microsoft offer.
Alibaba's CEO Jack Ma has said that he wants to buy Yahoo, but because of political problems, that may not happen. It is in the board's job description to maximize shareholder value. It has not done this at all. The board did make the right decision by firing CEO Carol Bartz, but finding a new CEO has taken much longer than expected, and brings up the potential for not selling the company AGAIN. It seems the lights have never gone on in Sunnyvale, and nobody bothered to tell them they are in the dark.
Dan Loeb still has some time to agitate Yahoo's board and do what he can to try to maximize shareholder value, but the light is flickering in Sunnyvale. Better get to work.
Traders who believe that Dan Loeb can somehow get something done before the board screws up again might want to consider the following trades:
Loeb believes shares are worth $19-$31. If his calculations are right, there is significant upside in Yahoo shares from current levels. Investors may want to take a stab now, with Bartz gone and Loeb in. However, something needs to be done about the board. Perhaps Loeb can get a seat on the board.
Traders who believe that Loeb will fail may consider alternate positions:
Yes Loeb does understand tech, but why would he succeed where others have failed before? If the board does not resign (and shareholders continue to vote for them), nothing will change. Yes, the company is actively shopping itself, but there is the chance that Yahoo's board errors on this decision as well. Traders may want to short or buy puts if they believe this.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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