Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Yahoo's latest game plan ripped by Canyon Capital

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Less than a week after Yahoo scrapped plans to spin off its Alibaba stake and instead explore a reverse spinoff of its core Internet business and certain other assets, some of its major stockholders are voicing objections.

Canyon Capital fired off a letter Friday evening to the company's management arguing that Yahoo's new potential restructuring plan, which was revealed late Tuesday, lacked "any clear details in terms of analysis, process, or timing." The Sunnyvale, California, money manager, with $24 billion in assets under management, holds a stake of about 10 million shares and is one of Yahoo's larger hedge fund investors.

A reverse spinoff of the core business plus its cash and Yahoo Japan stake, which is the notion now under consideration, "would be … fraught with operational, tax and execution risks similar to those that ultimately caused it to abandon the Alibaba spin," the Canyon letter said.

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A sale of the entire company should be considered, with a "primary goal" of closing "the discount on the company's non-core assets as much as possible and in a timely manner," the Canyon managers added.

Marissa Mayer
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A Yahoo spokesman declined via e-mail to comment on the Canyon letter, excerpts of which were published inThe Wall Street Journal on Sunday evening.

Since the afternoon the Yahoo reverse plan was first reported on CNBC as the newest step under contemplation, the stock has sunk nearly 6 percent.

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A defense by CEO Marissa Mayer clearly failed to convince some investors that a possible sale of the core business would be a better move. At least one other fund, SpringOwl Asset Management, was also criticizing the Yahoo restructuring.

In a 99-page presentation published this month, officials at that hedge fund proposed job cuts and new management, among other steps, arguing that Mayer had frittered away some $10 billion on failed acquisitions and stock buybacks. "It's been a poor record," managing director Eric Jackson said in a telephone interview with CNBC.

Rather than jumping into a new strategy for spinning off Yahoo!'s core, Jackson added, "there needs to be a more fulsome discussion among shareholders" about at least two things: turning around the core business itself, and considering bringing on a partner company like Liberty Media to take board seats and help manage Yahoo's stakes in Alibaba and Japan "in a more tax-efficient way."

New York-based SpringOwl, which has roughly $300 million under management, took a stake in Yahoo during the third quarter of an as-yet-undetermined size.

On the other hand, the activist fund Starboard Value was in favor of abandoning the Alibaba spinoff in favor of the current plan, but has been pressuring Yahoo management for various changes for much of the past year.

In its letter, Canyon found fault with Yahoo's process as well as its conclusions. The company's "inaction to date has been startling," the letter stated. "Requiring shareholders to continue to wait for definitive action for another year or more — and extending the tenure of senior management" is "simply unacceptable."