Yahoo! Résumégate Day 12: Peace In Our Time

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It seems that some combination of Dan Loeb persistence, cancer, and possibly incorrectly filled out job application paperwork have brought down Scott Thompson at Yahoo, and that's not the only success activist investors have to report recently. From Bloomberg:

A generation ago such investors typically grabbed headlines under a different label: corporate raiders, robber barons, barbarians at the gate. In boardroom dramas, they were cast as the cold, calculating capitalists who ruthlessly used their power to slash jobs, liquidate assets, and destroy venerable brands. ...

No more. Today, Icahn is the elder statesman in a generation of activists as likely to be praised for holding management accountable as condemned for draining a company’s value. So how did the robber barons of yesteryear become the shareholder’s best friend? Why do they now seem more interested in running companies than stripping them? The answer comes down to a shift in rules, techniques, and investor attitudes. Leveraged buyouts and hostile takeovers have morphed into proxy battles, ad campaigns, and shareholder resolutions.

Part of me wants to read this as a symptom of broader economic changes. Gordon Gekko wanted to layoff unionized mechanics because in 198whatever the private sector employed unionized workers and they got paid a relative lot. Now the private sector employs outsourcing and the guy to get rid of is the CEO, because that's where the money is.

This part of me might point out that firing a CEO in 1985 only saved you as much money as firing 40 unionized workers, whereas in 2012 it gets you 5 times as much bang for the buck. The fact that Thompson, unlike CEOs who resign in disgrace without activist hounding, is actually foregoing some severance benefits would seem like some support for that. Sure, whatever, you replace one CEO and pay for another so the net savings aren't as big as that - but the increasing size of CEO pay surely proves that CEOs are increasingly valuable on average, which presumably means greater variance in their value and so more value that can be captured by kicking out the wrong one and replacing him with the right one.

There's also the fact that, if you paint yourself as a protector of shareholder democracy, it helps to have your opponents ... paint themselves as ignorers of shareholder democracy. A part of the Yahoo saga that I found pleasing in a dorky way was this:

NEW YORK, MAY 10, 2012 /PRNewswire/ -- Third Point LLC, Yahoo! Inc.'s (NASD: YHOO) largest outside shareholder, noted today that Yahoo! has set a record date of Thursday, May 17, 2012 for its upcoming 2012 Annual Meeting of Shareholders, thus making Monday, May 14, 2012 the last day that a shareholder may purchase shares and settle with record date ownership.

This information was not included in Yahoo!'s preliminary proxy statement filed with the SEC and has not been publicized by Yahoo, other than by meeting the minimum requirements of SEC rules by providing it to banks, brokers and other nominees.

It's kind of a weird quirk of shareholder voting that the shareholders who get to vote at a shareholder meeting aren't the people who hold shares at the time of the meeting, but rather the people who held those shares sometime in the past (the record date), and that the company doesn't need to tell you when that record date was until it's already happened. But they do need to tell the exchanges and nominees, and it filtered back to Third Point, who thought it was something that others might be interested in.

But ... why? Well, for one thing, if you were contemplating buying Yahoo shares to vote alongside Dan Loeb, now would be the time. (Today, I mean, though it's moot now.) That would be the case if you were just an outsider with no interest in Yahoo but an abiding interest in helping out Dan Loeb, or perhaps more relevantly if you were currently long YHOO in swap form to avoid dividend taxes* and/or reporting requirements:

Investors who are "long" Yahoo! through equity swaps do not have the right to vote shares at the Annual Meeting. In order to have the ability to vote in respect of a Yahoo! position held in swap, investors should begin the process of unwinding any swaps and moving into physical shares so that the transaction settles in advance of the May 17 record date.

There's some debate imaginable about how sympathetic you should be with hedge fund arbs who just come into the stock to vote in a proxy fight,** or activists who hold shares in swap form to stay under reporting thresholds. Lots of people think that companies are supposed to spend a lot of their time disenfranchising those sorts of shareholders, though those people are often paid by corporate boards. But even long-term retail shareholders of Yahoo could be screwed by the late record date disclosure, since if they have shares in a margin account they may not actually have the shares:

Third Point urges Yahoo! shareholders to take the necessary steps with their custodial banks and brokerage firms to ensure they have the ability to vote at Yahoo!'s upcoming Annual Meeting. Shares held in margin accounts may be loaned out by brokers without the knowledge or consent of the beneficial owner on the May 17, 2012 record date and, if subject to a stock loan, cannot be voted by the beneficial owner whose shares were loaned out. In order to ensure that Yahoo! shareholders have the ability to vote, they should move their shares into a cash account in advance of the May 17 record date or make other arrangements with their bank, broker or other nominee.

Yahoo denied it was doing anything nefarious, and y'know what, it was probably right. In 2011, with no proxy contest, it seems to have announced the record date for its annual meeting 50 days after it passed. It's not that Yahoo was trying to prevent its shareholders from supervising the company, it's just that it didn't care. Which doesn't exactly hurt Loeb's case.

The Good Barbarian: How Icahn, Ackman, and Loeb Became Shareholder Heroes [Bloomberg]
Third Point Alerts Yahoo! Shareholders To May 17, 2012 Record Date For Yahoo!'s 2012 Annual Meeting [PRN]

* Ha, no, I'm just, like, making a general point about swaps. Obviously Yahoo will never pay a dividend!

** If you don't know about the Telus/Mason fight, because it's in Canada or whatever, I cannot recommend that linked article highly enough. Amazingly cool trade; we may have more to say about it sometime.

Related

Yahoo! RésuméGate, Day 9: Scott Thompson Didn't Even Offer Yahoo The Courtesy Of A Fake Résumé

Last Thursday afternoon, hedge fund manager Daniel S. Loeb, who is waging a proxy battle against Yahoo, made a simple request: that the board of directors fire CEO Scott Thompson, who had lied about having a computer science degree from Stonehill College, when in fact the academic fraud only graduated with a degree in accounting. Loeb wanted the job done by Monday at 12 noon, EST and as the deadline passed, it was clear the request was would not be honored. As a result, Loeb was forced to demand every single document related to Thompson's hiring at the company. Emails, heading hunting referrals, thoughts, feelings, the works. Most importantly, the résumé Thomspon submitted when applying for the gig. Did Loeb enjoy dragging this out? No. Did he take pleasure in watching the "carnage" unfold? Certainly not, and he's shocked and offended anyone would ever think that. Nevertheless, a computer science degree had been fabricated out of thin air and Loeb felt he owed it to shareholders to get some answers. And while Yahoo! has presumably not yet faxed over the documents he asked for, they did offer this: Apparently the Yahoo chief says he's being honest when he tells us no fake résumés were submitted to Yahoo because they never got any résumés, period. Yahoo‘s embattled chief executive, Scott Thompson, told the company’s senior management on Thursday that he never submitted a résumé or falsified his academic credentials, a person briefed on the matter said. [Dealbook]

Memo To Yahoo: Dan Loeb Will Personally Shake Out ALL The Skeletons In Your Closet If He Has To

As you may have heard, Third Point Management is currently waging a proxy battle against Yahoo, of which it owns 5.81 percent. Last September, the hedge fund and its founder, Dan Loeb, wrote a letter to the company's board of directors entitled "The Failures of Yahoo’s Board of Directors Necessitate a Significant Infusion of Fresh Board Talent," in November it demanded two board seats in order to rest the ship from a bunch of bumbling incompetents, and in February, it said actually, make that four seats. Unfortunately, Yahoo resisted. Which is why yesterday, Loeb and Third Point were forced to enter into the record some damning evidence showing current YHOO CEO Scott Thompson to be a dangerous, dangerous liar, the likes of which the search engine would be wise to sever ties. Specifically, Third Point revealed that contrary to statements made on SEC filings, Thompson? Did not graduate from Stonehill College with degrees in both computer science and accounting but only the latter. The reason Third Point knew this to be true was because it Googled Stonehill College and found that the school did not even start offering computer science degrees until 1983, well after the time Thompson graduated. So, a liar and a liar who can't even be bothered to cover his tracks to boot. Oh, but the résumé chicanery did not stop there. Yahoo director Patti Hart, Third Point, went on to reveal, also had her own little C.V. "error" to speak of. Whereas Ms. Hart claimed to have graduated from Illinois State University with degrees in marketing and economics, in fact, merely earned a bachelors in business administration and specialized in marketing and econ. Yahoo, which yesterday confirmed the résumé duplicity, clearly needed no further substantiation that these two were academic frauds. Third Point and Loeb knew this much to be true. AND YET. As of 2PM today, a whopping twenty-four hours after their lies caught up to them, they remain employed by the company. So now this is happening because apparently some people need to be put on a deadline: Dear Board of Directors: Yahoo!’s initial response yesterday to Third Point’s identification of material inaccuracies in both CEO Scott Thompson’s and Director Patti Hart’s educational record was insulting to shareholders. We assume that these initial statements were attributable to Mr. Thompson and were not made with the Board’s approval. While we appreciate the Board’s statement late last night that it would conduct an investigation, unfortunately, for this Board and this Company, it is too little and months too late. To assert that years of inaccurate SEC filings, website biographies and, most likely, D&O questionnaires and curriculum vitae (including, presumably, the CV provided to Yahoo! when Mr. Thompson reached out for the job) were “inadvertent” is, in our view, the height of arrogance. Mr. Thompson and the Board should make no mistake: this is a big deal. CEO’s have been terminated for less at other companies. The Company’s Preliminary Proxy Statement filed on April 27, 2012 (at page 22) states that the “minimum qualification for service as a director of the Company are that a nominee possess...an impeccable reputation of integrity and competence in his or her personal and professional activities.” Furthermore, Yahoo!’s response “confirming” that Ms. Hart “specialized” in Marketing and Economics, rather than having earned her degree in such subjects (as Ms. Hart has asserted in filings for years) is a similar canard. A “specialty” is not a major. It is not a “minor”. We don’t know what it is, but we do know that like Mr. Thompson, Ms. Hart has been misrepresenting her actual degree to the investing public for years. Again, we hope that the Board does not accept this feeble attempt at “spin” as a justification for Ms. Hart’s misrepresentations. Irreparable damage to Yahoo!’s culture will continue every day that the Board allows Mr. Thompson and Ms. Hart to remain at the helm of the Company after having clearly demonstrated that they lack even the “minimum qualifications for service as a director of the Company.” Mr. Thompson, in particular, cannot possibly have any credibility remaining with the all-important Yahoo! engineers, many of which earned real – not invented – degrees in computer science. Moreover, permitting Mr. Thompson and Ms. Hart to stay with the Company after apparently violating the Code of Ethics sends a message to all Yahoo! employees that a different set of rules applies at the top. Third Point, Yahoo!’s largest outside shareholder with over $1 billion invested, called yesterday for an immediate investigation if our assertions were true. The Board appears to have acceded to this demand. Its response must be swift and decisive. In that regard, Third Point will consider it grounds for further action if the Board does not take the following steps by Noon EDT on Monday, May 7th: 1) Publicly reveal the process by which it vetted Mr. Thompson as a potential CEO candidate. This disclosure should include the release of all minutes of any meeting at which Mr. Thompson’s candidacy was discussed and any reports or other materials upon which directors relied to evaluate Mr. Thompson’s candidacy. 2) Disclose whether any Board member, including Maynard Webb, who has long-standing ties to Mr. Thompson, and Ms. Hart, who headed the Search Committee, was aware of Mr. Thompson’s deception prior to receipt of Third Point’s letter yesterday. 3) Provide shareholders with all information regarding the director nomination process, including the so-called “skills matrix” referred to in the Company’s preliminary proxy statement, which the Board purportedly used to determine the qualifications of various candidates, including Third Point’s nominees. 4) Terminate Mr. Thompson for cause immediately given his demonstrable unsuitability to remain Chief Executive Officer and a director of Yahoo! and accept the resignation of Ms. Hart for similar reasons. Finally, we urge the Board to stop wasting valuable company resources and drop its resistance to placing the Third Point nominees on the Board. We are prepared to join immediately. Once on the Board, our first tasks will be to work with the remaining Board members to find Yahoo! a new leader with the qualifications and integrity to lead the Company and install best practices of corporate governance. The Company can ill afford to continue this misguided fight with its largest outside shareholder while it has so many other fires to put out. There has been enough damage already. Sincerely, Daniel S. Loeb Chief Executive Officer Third Point LLC So, take the weekend to mull it over and while you're at it, consider gathering documentation of other potentially false claims such as: 1. His first-place finish in his 3rd grade spelling bee (do you really think a future Stonehill grad would know how to spell 'abhinaya'?) 2. That he bought Apple stock at $76/share (RIGHT) 3. That he can bench 285 (sure) 4. That he graduated high school (just don't know) 5. His circumcision (do you want to get to the bottom of this guy or not? If he lied about comp sci, who knows what else he'd lie about) Third Point Demands Yahoo C.E.O. Be Fired by Monday [Dealbook] Loeb Asks Yahoo To Fire CEO By Monday [MarketWatch]

Yahoo! RésuméGate: Day 6

Patti S. Hart, the Yahoo director who headed the board search committee that picked Scott Thompson as the company’s chief executive, will not stand for re-election, a person briefed on the matter told DealBook on Tuesday. Ms. Hart’s departure, which could be announced as soon as Tuesday afternoon, is the first significant response by Yahoo amid the growing controversy over Mr. Thompson’s academic record. The company is also expected to formally announce later on Tuesday the formation of a three-member board committee to investigate Mr. Thompson’s hiring and how erroneous academic information appeared in official company documents. [Dealbook, earlier]

Yahoo! RésuméGate, Day 7: Third Point Is Not Enjoying This At All

In fact, Dan Loeb and Co. find this "embarrassing episode" painful to watch. Dear Board of Directors: Six days have passed since Yahoo! acknowledged the fabrications in Chief Executive Officer Scott Thompson and Director Patti Hart's resumes. Since then, the following has occurred: (i) shareholders have been told that Mr. Thompson's errors were "inadvertent", (ii) Mr. Thompson made a classic "I'm sorry you feel that way" non-apology without actually accepting responsibility, (iii) Ms. Hart announced she will not seek re-election to the Board presumably due to her leadership of the botched CEO hiring process but intends to serve out her term, and (iv) the Board has formed a special committee to conduct a "thorough review" into Mr. Thompson's academic credentials. It appears very clear to us – and to many corporate governance experts, Yahoo! employees, and fellow Yahoo! shareholders – that Mr. Thompson's fantasy degree was in no way an "inadvertent error". The evidence shows he had been using false credentials for years. Mr. Thompson's "apology" was clearly insufficient and it seems that the only thing he actually regrets is that he has been caught in a lie and publicly exposed. Without any explanation or accountability, Yahoo! has been left to flounder under a discredited leader for an undefined period. So, after six days, we must ask – what is this Board waiting for? It seems farcical to us that the Board will most likely spend more time deliberating over whether Mr. Thompson should be fired than it did properly vetting whether he should have been hired. The necessary investigation into whether certain senior executives and Board Members knew of Mr. Thompson's deceptions before hiring him should not delay decisive action over his ethical breaches. Third Point has over $1 billion invested in Yahoo! and we take no joy in witnessing this carnage. This Board's unchecked value destruction must stop once and for all. Therefore, we once again call upon the Board to immediately (i) place Third Point's entire slate on the Board replacing Mr. Thompson and Ms. Hart, (ii) appoint an interim CEO—we would suggest CFO Tim Morse or Head of Global Media Ross Levinsohn (assuming neither had any knowledge of Mr. Thompson's fabrications) and (iii) allow Third Point nominee Michael Wolf to Chair the Search Committee for a new permanent CEO (Mr. Wolf will waive the $15,000 fee that Ms. Hart received for her work as Head of the Search Committee last year, which we expect she will promptly disgorge). This is the only way for Yahoo! to move past this embarrassing episode. Sincerely, Daniel S. Loeb Chief Executive Officer Third Point LLC