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 The shareholders said they would prefer that than wait for Yahoo to
go through with its plan to seek a tax-free spin-off of the
operation, which includes Yahoo's sports and news sites as well as
its popular email service.
Reuters reviewed a letter sent to the Yahoo board by one major
shareholder and spoke to people with knowledge of the views of
others with significant stakes.
The investors argue that it would be better to take an additional
tax hit now rather than owning shares in a spin-off that may have
lost significant value later. Yahoo's stock has fallen 36 percent
over the last year, making investors nervous about the risk of a
further big decline.
Some are also concerned that the Internal Revenue Service may
challenge the tax-free status, which could leave shareholders with a
big tax bill anyway. The IRS helped to kill off a previous Yahoo
plan to spinoff its stake in Chinese ecommerce giant Alibaba Group
Holding Ltd by declining to issue a ruling endorsing its tax-free
nature. That would have left Yahoo vulnerable to an IRS challenge to
the status at a later date.
WROTE TO BOARD TWICE
The pressure on Yahoo's management and board has increased since
November, when Starboard Value LP, which owned 0.75 percent of Yahoo
as of Sept. 30, making it the company's 23rd largest shareholder,
called for the sale of the company's main business instead of the
Alibaba spinoff.
Yahoo in December abandoned plans to spin off the Alibaba stake and
announced it would instead spinoff its other assets, including its
stake in Yahoo Japan, into a new company. Now, that new strategy is
also being questioned.
Canyon Capital Advisors, the 30th largest shareholder, wrote to the
Yahoo board twice in December and demanded that it explore an
immediate sale of the company, according to a Dec. 11 letter
reviewed by Reuters. Canyon, with a 0.60 percent stake in the
company as of Sept. 30, said in one letter that a year is "too long
to wait" for a spinoff.
Mason Capital, Yahoo's seventh largest shareholder, is also pushing
for an immediate sale, according to people familiar with the matter.
Some shareholders have expressed doubts for much of the past year
about whether CEO Marissa Mayer has a robust plan to revive the
struggling Internet media business.
"I don't think the market's going to give any bump in value as long
as the current management is in place," said Eric Jackson, managing
director of SpringOwl Asset Management LLC. SpringOwl, which hasn't
disclosed the size of its stake, has pushed for Mayer's removal.
These investors criticize Mayer for what they say were a series of
ineffective acquisitions and her inability to stem the continued
decline in the value of the Internet media business as reasons to
replace her. But some analysts have said it is unclear if anyone
could have done a better job under the circumstances.
Yahoo hasn't publicly responded to critics and declined to comment
for this story.
A person familiar with the matter told Reuters that Mayer has the
support of Yahoo's board and will be given time to carry out the
spinoff.
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When the spinoff was announced, Mayer said the company was working
on a plan to revitalize the core business that would be announced
early this year. The company has yet to provide details of the plan.
VERIZON INTEREST
A person familiar with Starboard's thinking said the activist hedge
fund estimates the main operation could be worth around $5 billion
to a strategic buyer, with a projected tax bill of around $1
billion, a hit it views as the cost of obtaining maximum value from
the division.
Another shareholder in the top 10, who did not want to be named, had
a slightly lower estimate of the tax hit, of between $400 million
and $800 million, depending on the sale price.
SunTrust analyst Robert Peck said it would be possible to sell the
business within "three to six months." Fran Shammo, the chief
financial officer of U.S. telecommunications company Verizon
Communications Inc, told a media conference in New York in early
December that it could be interested, and analysts say media and
private equity firms may be as well. Uncertainty about the tax
status of a spinoff is weighing on the investors.
"Investors are far from convinced by management's interpretation of
the law and the advice they've been given," said Pivot Research
analyst Brian Wieser.
In September, the IRS said it will no longer issue so-called
"private letter" rulings to companies seeking guidance on the
taxable nature of spinoffs before they happen, which means Yahoo
will not know if the spinoff meets the criteria to be tax-free until
after it occurs.
When asked specifically about Yahoo, IRS spokesman Dean J. Patterson
said, "Federal law prohibits the IRS from discussing specific
taxpayers."
The person familiar with Starboard's thinking says one disastrous
scenario would see the value of the Internet business falling for a
year while the company fails to get a clear tax ruling.
Another worry: the IRS challenges the spinoff, Yahoo appeals and has
to make financial disclosures in court that hurt the stock, and a
verdict isn't reached for at least another year, said Don Williamson
of American University's Kogod Tax Center.
(Reporting by Deborah M. Todd and Michael Flaherty; Editing by
Stephen R. Trousdale and Martin Howell)
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