Last September, Starboard Value announced a large position in Yahoo! (YHOO) and called on CEO Marissa Mayer to make a number of changes at the company to unlock value.
Last week, Starboard's 13F disclosed that it halved its stake in the Internet company during the second quarter. It appears that Yahoo has lost its activist investor.
Of course, we don't know when Starboard sold its shares during the second quarter. It could have been as early as April. An interesting thing, though, is that the share sale appears to have taken place shortly after Starboard decided not to run a proxy contest to take control of the board leading up to the June shareholder meeting of Yahoo!
I was always surprised when it became clear that Starboard wasn't running an activist contest against Mayer. To me, it seemed like an easy win ¿ especially compared to ones they've fought before, such as trying to take down Tim Armstrong at AOL (AOL).
Some Yahoo investors and analysts have speculated in the last few days that perhaps it has a bad feeling about the coming IRS Private Ruling Letter, which will determine if Yahoo can spin off its Alibaba (BABA) stake in a tax-free manner. I have no inside knowledge of Starboard's thinking, but I doubt this is the reason.
If I had to guess, I would say that Starboard seems to have lots of other opportunities on its plate. It also lost the lead analyst who had been monitoring Yahoo to another hedge fund at the start of the year. Perhaps Jeff Smith just made a call that his other opportunities were more compelling and better risk/reward scenarios than Yahoo!. As a hedge fund manager, that's what he's paid to do by his investors.
Whatever Starboard's thinking, though, its decision is a vote of no confidence in Mayer.
The one silver lining in this for Yahoo! investors is that Starboard's announcement could give confidence to another activist investor to get involved in Yahoo. And why wouldn't they?
In our post-quantitative easing world, there is no shortage of activist hedge funds looking for quick-flip opportunities where they can ride in, call on company management to disgorge cash, and ride off. Yahoo is tailor-made for this type of an approach.
An activist also could simply try to replace Mayer as CEO. Would that boost the stock in itself? I think so. The market believes that Mayer will waste all the cash on the balance sheet. And with her M&A track record at Yahoo!, that's not an unreasonable view.
It could be more difficult for an activist to convince Alibaba or SoftBank or both to buy up Yahoo!, but that would be another approach an activist might be expected to take.
Timing-wise, I would expect someone to announce a position after Labor Day to set themselves up for a spring proxy contest.