Yahoo facing more pressure from frustrated shareholders

Yahoo is facing more pressure from two shareholders that want the company to pursue other alternatives besides a complex spinoff of its Internet operations.

So instead of selling Yahoo’s core businesses off like Canyon Capital demands, SpringOwl suggests an operations-minded leader could turn around Yahoo’s best assets like Yahoo’s finance and sports divisions.

Yahoo abandoned a long-held plan to shed its valuable stake in Chinese e-commerce provider Alibaba Group Holding Ltd., due to concerns about a high tax bill, and instead is now considering bundling the rest of its assets into a separate, standalone company.

Investors’ patience with Yahoo has begun to wane after years of steady decline in business, with activist shareholder Starboard Value last month calling for the company to sell its Web businesses, or face a proxy fight.

The New York City-based investment firm also called for Yahoo to dramatically reduce its headcount to 3,000 people, down from close to 12,000 now, and to replace certain directors. A more disruptive plan came from Eric Jackson, managing director at SpringOwl, an investment firm with a minority share in Yahoo.

Getting rid of 9,000 employees along with “free food and other expensive sponsorships” such as parties could save the company at least $2 billion annually, the presentation said.

His presentation is also a warning shot that Yahoo should not sell its core business right now.

“The market already assigns significant negative value to the company’s mature core operating business and assets and, in our view, this delay will inevitably cause further decline in value”, Canyon said in its letter to Yahoo, according to the WSJ. With cost cutting and improvements to profitability, he predicts it could eventually be acquired for more than $24 billion. SpringOwl is only a $300 million fund. But his plan is to round up major shareholders to rally around his plan.

“We do not understand the board’s continued support of the company’s senior management team, given its track record”, Canyon Capital wrote.

Hedge fund Starboard Value has said it would like to see Yahoo focus on a sale sooner rather than later – although Yahoo’s talk of a tax-free spinoff may be having a chilling effect on bidders, USA TODAY reported Sunday.

Canyon’s call to sell the business echoes a recent push by activist investor Starboard, which last month urged Yahoo to halt its Alibaba spinoff and find a buyer for the Internet business.

If Yahoo proceeds with its reorganization, the implementation could take years, investors said. However, last week, Chairman Maynard Webb said the board has not approved a sale process but it has “a fiduciary duty to entertain any offers”.