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CNBC Transcript: CNBC Exclusive: Starboard Value CEO Jeff Smith Speaks with CNBC’s David Faber Live from the Active-Passive Investor Summit Today

WHEN: Today, Tuesday, April 19th

WHERE: CNBC's "Squawk on the Street"

Following is the unofficial transcript of CNBC EXCLUSIVE interview with Starboard Value CEO Jeff Smith on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today. Video of the interview will be available on cnbc.com.

All references must be sourced to CNBC.

HOBBS: WITH THE DOW 90 POINTS AND CLIMBING, LET'S GET TO DAVID FABER AT THE 13D MONITOR ACTIVIST INVESTOR CONFERENCE IN NEW YORK WHERE HE'S GOING TO SPEAK TO AN ACTIVIST WHO'S CURRENTLY EMBROILED IN THE PROXY FIGHT FOR YAHOO. DAVID, TAKE IT AWAY. GOOD MORNING.

FABER: THANKS, SIMON. YEP, EVERY YEAR OF COURSE WE COME HERE TO THE ACTIVE PASSIVE SUMMIT FORUM BY 13D MONITOR AND WE'VE BEEN LUCKY ENOUGH TO TALK TO JEFF SMITH IN THE PAST. AND HE'S SITTING ACROSS FROM ME NOW. NICE TO HAVE YOU.

SMITH: THANKS FOR HAVING ME.

FABER: LAST YEAR WE STARTED OFF ON YAHOO AND I GUESS WE HAVE TO START THERE THIS YEAR. THESE THINGS TEND TO TAKE TIME A LONG TIME IT OCCURS TO ME GIVEN HOW OFTEN WE'VE ENDED UP TALKING ABOUT THIS, THE COMPANY REPORTING EARNINGS AFTER THE BELL TODAY YOU ARE TRYING TO SEEK NINE SEATS ON THE BOARD. JEFF, I GUESS MY QUESTION IS WITH THE PROCESS OF THE SALE GOING ON RIGHT NOW, AND THE LIKELIHOOD THAT THAT PROCESS WILL COME TO A CONCLUSION PRIOR TO YOU BEING ABLE TO SEAT ANY DIRECTORS, WHY NOT FROM YOUR PERSPECTIVE TRY TO REACH A SETTLEMENT TO GET IN THAT BOARDROOM NOW AND INFLUENCE THE PROCESS?

SMITH: YEAH, DAVID, IT'S A GREAT QUESTION. IT'S SOMETHING WE KEEP ASKING OURSELVES. AND OF COURSE IT TAKES TWO PARTIES TO SETTLE. BUT THE HONEST QUESTION AROUND THIS IS WHAT'S GOING TO HAPPEN, RIGHT? SO IF WE CONTINUE TO MOVE FORWARD AND WE'RE CONTINUING TO SEAT NINE DIRECTORS, WELL, THEN THE COMPANY IS GOING TO BE WATCHED, RIGHT? THEY'RE GOING TO FEEL THE PRESSURE TO MAKE SURE THEY'RE DOING THE RIGHT THING FOR THE SHAREHOLDERS IN ORDER TO NOT GET TO A RESULT OF A CHANGE OF BOARD MEMBERS. BUT WE NEED TO PROTECT OURSELVES BECAUSE IF WE GET TO THE ANNUAL MEETING AND THE COMPANY HAS NOT MOVED FORWARD AS THEY'RE SUPPOSED TO, THERE'S A QUESTION HERE AS IT RELATES TO CAPABILITY AND CREDIBILITY OF THE BOARD MEMBERS AND THE MANAGEMENT TEAM IN TERMS OF RUNNING THE PROCESS. IF WE GET TO THE END AND THEY HAVEN'T BEEN SUCCESSFUL AS IT RELATES TO GETTING THE COMPANY SOLD, THE CORE BUSINESS SOLD, WE'RE GOING TO NEED TO PICK UP THE PIECES. AND WE NEED TO PICK UP THE PIECES AND BE ABLE TO MAKE CHANGE AND THAT'S WHY YOU HAVE TO GO FOR SO MANY SEATS. NOW, THE OTHER CHOICE AS YOU MENTIONED IS SETTLING. AND THE ADVANTAGE OF SETTLING TODAY IS TO WORK WITH THE COMPANY AND BE A PART OF THIS PROCESS AND ADD CAPABILITY AND CREDIBILITY IN THE BOARDROOM NOT JUST FOR THE BENEFIT OF SHAREHOLDERS, BUT ALSO FOR THE BENEFIT OF THE PROCESS AND FOR THE POTENTIAL BUYERS. SO THERE'S A GOOD REASON TO SETTLE. THERE'S ALSO A GOOD REASON NOT TO SETTLE. AND IT JUST DEPENDS ON WHETHER YOU CAN GET TO A POSITION WHERE BOTH SIDES ARE COMFORTABLE.

FABER: ARE YOU ANYWHERE NEAR THAT? I MEAN, I WOULD ASSUME GIVEN WHAT I'M HEARING THAT THERE IS SOME CONVERSATION AROUND THAT IDEA. AND YOU'VE JUST OUTLINED THE REASONS WHY IT MIGHT BE IN YOUR BEST INTEREST AT LEAST TO SEEK THAT. AND I CAN IMAGINE ON THEIR PART AVOIDING YET ANOTHER NASTY FIGHT THAT'S ONLY GOING TO GET NASTIER AS WE GET CLOSER TO THE VOTE AND DISTRACTING IS IN THEIR INTEREST. SO WHY NOT GET IT DONE?

SMITH: IT WOULD BE GREAT TO GET IT DONE. SO WE ARE HAVING CONVERSATIONS, AS WE ALWAYS DO WITH COMPANIES. WE SPEAK WITH EVERY COMPANY WE INVEST WITH. WE WANT TO SETTLE. IN FACT, SINCE THE DARDEN SITUATION WHERE WE REPLACED THE WHOLE BOARD, WE HAVEN'T BEEN ABLE TO RUN A PROXY CONTEST ALL THE WAY TO A VOTE. WE'VE BEEN ABLE TO SETTLE WITH COMPANIES. WE'RE HAVING A CONVERSATION WITH YAHOO AS WELL. IF WE CAN REACH A MUTUALLY AGREEABLE SITUATION, WE WANT TO DO THAT. IN ORDER TO DO THAT WE HAVE TO GET ENOUGH REPRESENTATION ON THE BOARD WHERE WE FEEL COMFORTABLE THAT WE WOULD BE ABLE TO WORK WITH THE BOARD MEMBERS IN GOOD FAITH TO PROVIDE THE SAME CAPABILITY AND CREDIBILITY IN THE BOARDROOM FOR THE BENEFIT AGAIN OF SHAREHOLDERS AND FOR BUYERS

FABER: SO WHAT'S THAT NUMBER, THREE, FOUR?

SMITH: IT DEPENDS. IT DEPENDS ON THE CONVERSATIONS YOU HAVE WITH THE OTHER BOARD MEMBERS. EVERY COMPANY'S DIFFERENT. THERE'S NO FORMULAIC ANSWER, IT'S A MATTER OF TRUST THAT NEEDS TO BE BUILT BETWEEN US AND THE MANAGEMENT TEAM AND US AND THE OTHER INDEPENDENT BOARD MEMBERS.

FABER: BUT YOU'RE TALKING ABOUT A PROCESS THAT'S ONGOING, FIRST ROUND BIDS DUE BASICALLY TODAY OR YESTERDAY. WE ALREADY HAVE A SENSE GIVEN ALL THE REPORTING DONE AROUND THIS NAME THAT VERIZON VERY MUCH WANTS TO POTENTIALLY OWN IT AND PUT A BID IN. IT DOES SEEM THIS BOARD IS APPROACHING THINGS THE WAY A SHAREHOLDER WOULD WANT THEM TO IN TERMS OF TAKING IT QUITE SERIOUSLY IN A SALE. DO YOU QUESTION THEIR INTEGRITY?

SMITH: WELL, YOU KNOW, THEY SEEM TO BE APPROACHING IT THAT WAY, BUT YOU DON'T KNOW. THERE HAVE BEEN CASES WITH THIS MANAGEMENT TEAM AND THIS BOARD WHERE THEY'VE SAID THEY WERE GOING TO DO THINGS OVER THE LAST SEVERAL YEARS AND THEN THEY DIDN'T FOLLOW THROUGH. SO YOU CAN GO BACK AND THEY TOLD SHAREHOLDERS THAT THEY WERE GOING TO MONETIZE YAHOO JAPAN WHILE IN PARALLEL WHILE THEY WERE LOOKING AT DOING THE ABACO SPIN. BUT THAT DIDN'T HAPPEN. THEY TOLD US THEY WERE GOING TO BE LOOKING TO MONETIZE THEIR REAL ESTATE, AND THAT DIDN'T HAPPEN. THEY TOLD US THERE WERE GOING TO LOOK TO MONETIZE THEIR INTELLECTUAL PROPERTY AND THAT DIDN'T HAPPEN. THEY TOLD US THAT THEY HAD REACHED A BOTTOMING AS IT RELATES TO THEIR FINANCIAL RESULTS, AND THAT CLEARLY DIDN'T SO JUST BECAUSE THEY'RE GOING THROUGH A PROCESS RIGHT NOW DOESN'T MEAN THEY'RE NECESSARILY GOING TO FOLLOW THROUGH WITH THE PROCESS OR GET A GOOD RESULT IN THAT PROCESS. AND IT'S OUR JOB AS OWNERS TO REPRESENT THE BEST INTEREST OF THE OTHER OWNERS OF THE COMPANY AND TO TRY AND HELP.

FABER: RIGHT. WHAT DO YOU THINK IS A GOOD OUTCOME HERE? I MEAN, WHAT WOULD IN YOUR OPINION BE AN OUTCOME THAT YOU WOULD BE HAPPY WITH?

SMITH: WELL, IN THE CASE OF YAHOO, WE'RE STILL TALKING ABOUT A COMPANY WHERE THE CORE ASSETS ARE WORTH MORE THAN WHERE IT'S TRADING. WE'VE BEEN TALKING ABOUT THAT FOR YEARS.

FABER: WE HAVE BEEN TALKING ABOUT IT FOR YEARS. AND WE ALL KNOW IT'S A 34 MILLION SHARES OF ALIBABA THAT ARE KEY TO THAT. LET'S JUST FOCUS ON THE CORE BUSINESS ITSELF. WHAT'S A NUMBER IN YOUR MIND GIVEN ALL THE WORK THAT YOU'VE DONE THAT YOU FEEL LIKE, OKAY, I SEE THAT PRINTED. I'M HAPPY.

SMITH: WELL, IT'S THE HIGHEST POSSIBLE PRICE THEY CAN GET, RIGHT?

FABER: OKAY OF COURSE.

SMITH: YOU KNOW, EVERY BILLION DOLLARS IS A DOLLAR A SHARE EXTRA FOR SHAREHOLDERS. AND THEN YOU HAVE TO TAX EFFECT IT AFTER A CERTAIN COST BASIS. WE WANT THE BEST RESULT. WE WANT THE BEST RESULT FOR SHAREHOLDERS.

FABER: DEPENDS ON WHAT THAT IS. OBVIOUSLY IT'S THE HIGHEST PRICE, BUT WHAT'S THE REALISTIC PRICE? IS IT FIVE, IS IT FIVE AND A HALF?

SMITH: WELL, THE NICE THING ABOUT THIS ASSET IS IT'S A SOUGHT AFTER ASSET WITH ONE OF THE MOST RECOGNIZED BRANDS IN THE WORLD. BILLION UNIQUE USERS, UNBELIEVABLE PROPERTIES. IF YOU LOOK AT THE FUNDAMENTALS, SOMEBODY COULD EASILY PAY $3 BILLION, $4 BILLION, $5 BILLION, $8 BILLION $10 BILLION PLUS FOR THIS ASSET IF THEY CARED ABOUT IT DEPENDS ON WHAT THEY'RE GOING TO DO WITH IT. SO WHAT DO I WANT? I WANT THE HIGHEST POSSIBLE PRICE, I WANT A GOOD PROCESS, I WANT TO WORK WITH GOOD PARTNERS, I WANT TO MAKE SURE WE'RE FIGURING OUT NOT JUST THIS FIRST PART. BECAUSE THIS FIRST PART WE'RE TALKING ABOUT A SMALL DIFFERENCE. THE DIFFERENCE BETWEEN 5 BILLION AND 8 BILLION, FOR EXAMPLE, THREE DOLLARS A SHARE. BUT THERE'S A HUGE DIFFERENCE AS IT RELATES TO THE TAX INEFFICIENCY THAT WE'RE DEALING WITH ON THE OTHER ASSET. SO YOU ACTUALLY HAVE TO MAKE SURE THAT THE BOARD IS MANAGING THE WHOLE PROCESS AND NOT JUST THIS PROCESS. THIS IS WHAT'S GETTING THE AIR TIME RIGHT NOW. EVERYBODY IS TALKING ABOUT WHAT THEY'RE GOING TO SELL THE CORE BUSINESS FOR.

FABER: RIGHT.

SMITH: BUT YOU HAVE TO THINK ABOUT THE WHOLE.

FABER: YOU DO. THE COMPANY LEFT BEHIND CONCEIVABLY WHICH IS THE STAKE IN ALIBABA AND POTENTIALLY YAHOO JAPAN WHICH IS SOMEWHAT COMPLEX. FUNDAMENTALS WE'RE GOING TO GET A READ ON AFTER THE BELL. NOBODY SEEMS TO THINK THIS COMPANY IS DOING PARTICULARLY WELL, JEFF

SMITH: THAT'S NOT NEW.

FABER: NO, I MEAN, DO YOU THINK IT'S GOING TO BE A DISASTER THOUGH?

SMITH: I DON'T KNOW. JUST LIKE YOU DON'T KNOW, I DON'T HAVE ANY INSIDE INFORMATION. YOU KNOW, IF PAST IS A GUIDE IT'S PROBABLY GOING TO BE IN LINE TO DISAPPOINTING. BUT I DON'T KNOW. WE'LL SEE.

FABER: ALL RIGHT. A YEAR FROM NOW YOU PROMISE ME WE WON'T HAVE TO TALK ABOUT YAHOO?

SMITH: I HOPE SO.

FABER: ON OTHER FRONTS, SOMETHING WE HAVE TALKED ABOUT IN THE PAST AND I THINK IS AT LEAST WORTH REVISITING, NOT ONE OF THE GREATEST PICKS YOU'VE MADE. YOU DID IT PUBLICLY IN DELIVERING ALPHA LAST JULY, MACY'S. YOU'RE NOT RUNNING A FIGHT THERE. YOU SEEM TO BE AT LEAST TO A CERTAIN EXTENT HAPPY WITH THE MOVES MANAGEMENT HAS MADE. IN SOMETHING LIKE THAT EVEN IF YOU'RE RIGHT ON THE REAL ESTATE AND THE VALUE, YOU'RE DEALING WITH BIGGER ISSUES. WHETHER IT'S THE DEMALLING OF AMERICA OR THE FACT PEOPLE AREN'T GOING. DID YOU MISREAD SORT OF THE BIGGER ISSUES WHEN IT CAME TO MACY'S AS OPPOSED TO THE SMALLER THINGS YOU THOUGHT COULD CREATE VALUE?

SMITH: THERE ARE A FEW THINGS THAT HAPPENED AS IT RELATES TO MACY'S. FROM WHERE IT IS TODAY, MACY'S IS UNDERVALUED. YOU ARE TALKING ABOUT $19 BILLION ROUGHLY IN ENTERPRISE VALUE AND $20 BILLION PLUS IN REAL ESTATE VALUE. THEY'VE DONE SOME GOOD THINGS. THEY'VE RECENTLY PUT BILL LENEHAN ON THE BOARD. BILL IS SOMEONE WE WORKED WITH HIM AT DARDEN, HE RAN OUR REAL ESTATE PROCESS AT DARDEN AND SUCCESSFULLY DID THE SPIN-OFF OF FOUR CORNERS PROPERTY TRUST AND NOW THE CEO FOUR CORNERS PROPERTY TRUST AND WE WORKED WITH MACY'S TO GET BILL ON THE BOARD SO HE COULD HELP THEM WITH THEIR REAL ESTATE PROCESS. AND THEN THEY JUST RECENTLY HIRED SOMEBODY INTERNALLY ON THE MANAGEMENT TEAM TO WORK ON THE REAL ESTATE PROCESS. THEY ALSO ANNOUNCED THEY'RE GOING TO TAKE HUNDREDS OF MILLIONS OF COST OUT OF THE BUSINESS. AS RELATES TO WHAT HAPPENED IN THE PAST YEAR, WELL, YEAH, I MEAN, IT WASN'T NECESSARILY THE DEMALLIFICATION OF AMERICA, I DON'T THINK. BUT I DO THINK LAST YEAR WAS A DIFFICULT YEAR FOR DEPARTMENT STORES. AND FOR RETAILERS. AND SO WE GOT CAUGHT UP IN THAT. AND I THINK PART OF IT WAS WEATHER, PART OF IT WAS OIL DENOMINATED CURRENCIES. AND HOPEFULLY THINGS GET BETTER FUNDAMENTALLY AS IT RELATES TO THE COMPANY. EITHER WAY WE'RE TALKING ABOUT A LOT OF REAL ESTATE VALUE HERE AT THE COMPANY.

FABER: ALL RIGHT. WE'RE ALREADY OUT OF TIME SO WE'RE GOING TO HAVE TO DO ANOTHER INTERVIEW SOONER RATHER THAN LATER. JEFF, AS ALWAYS, APPRECIATE YOUR WILLINGNESS TO STEP IN AND TALK.

SMITH: THANKS, DAVID.

FABER: JEFF SMITH FROM STARBOARD, SARA, BACK TO YOU.

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