On Tuesday afternoon, Yahoo! (YHOO) will release its fourth-quarter earnings results. Most, including me, assume they will be bad. Most will be listening for other clues of what Yahoo! will do next with their company as it faces a potential proxy fight by the end of March.
I've been asked by several journalists what will happen and what CEO Marissa Mayer might say in order to avoid a proxy fight.
Based on my conversations with other shareholders over the last couple of months, I'd be very surprised if Yahoo! announcing a few thousand in job cuts would be enough to convince shareholders that she should stay on. All -- not just most -- of the shareholders I've spoken to believe that Mayer has done a terrible job as CEO. They believe that every day that Mayer stays on as CEO will result in further destruction of value in the core business.
The conventional wisdom among shareholders is that Mayer is simply tone deaf and hasn't been successful in doing anything to show a reasonable amount of evidence of a turnaround more than 3-1/2 years after she showed up as CEO.
Most shareholders I've spoken to are assuming that Tuesday's earnings will be used by Yahoo! to announce some limited number of job cuts, something on the order of 2,000. There were some signals from the company at the start of January that they were thinking of 1,000 cuts. Now it seems like 2,000 is projected number and possibly 3,000.
Journalists who have called me have asked if this will be enough for her to keep her job. I don't think so, because everyone knows that she would continue on as CEO in this scenario. Most won't see that as a very attractive outcome, especially since it would seem easy to defeat in a proxy contest.
What would be enough from the Yahoo! board to dissuade investors from running a proxy fight?
I can only think of three scenarios.
- Yahoo!'s board fires Mayer. But investors might still be worried at whom the board was going to hire as a replacement CEO if they weren't going to put the company up for sale.
- Yahoo!'s board puts a for sale sign on the core business. In this scenario, the board abandons its previously articulated plan to spin off the core business. They throw in the towel and just agree to sell the business and be done with it.
- Yahoo!'s board announces it's taking a private investment in public equity (PIPE) investment from a strategic partner. This is a scenario we at SpringOwl call the Buffett Convert because of the investment Goldman Sachs took from Warren Buffett in September 2008. This could essentially a big shift in the governance of Yahoo! and how it was going to be run going forward. If the market liked it, they might see no need for a proxy fight.
My guess is that management will just announce a bad quarter along with a relatively small number of job cuts. So, I expect there to continue to be an expectation among shareholders in a proxy fight. The deadline for that is not until the end of March.
