Jeff Smith, CEO of activist fund Starboard Value, said he is preparing to potentially pick up the pieces of a broken Yahoo.
Speaking with CNBC on Tuesday morning from 13D Monitor's Active-Passive Investor Summit in New York City, Smith explained that he has launched a proxy fight for Yahoo in case its board is unable to do what needs to be done.
"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 the result of a change of board members," Smith said. "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 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 — well we're going to need to pick up the pieces," he added.
The ideal outcome for Yahoo, Smith told CNBC, is for its core business to sell for "the highest possible price that they can get," but he declined to say how much he thought that should be.
"The nice thing about this asset is it's a sought-after asset with one of the most recognized brands in the world, a billion unique users, unbelievable properties," Smith said. "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 enough for it — it depends on what they're going to do with it."
Starboard has been pushing since 2014 for big changes at flagging tech giant Yahoo, launching a proxy fight in March to remove its entire board.
The fund has been critical of Yahoo's attempt to turn around its core business, and has called for its CEO, Marissa Mayer, to leave the board along with the other sitting members. Still, Smith has said he sees "a lot of opportunity" in Yahoo.
Smith said he is hoping to settle with Yahoo, but his firm needs "to get enough representation on the board where we can feel comfortable that we're going to be able to work with the board members in good faith to provide that same capability and credibility in the board room."
He added that such an agreement would need to be based on building "trust" between his firm and the management and current board.
But that trust isn't there yet, he said, adding that the board members "seem to be" approaching the sale process seriously, "but you don't know."
"There have been cases with this management team and this board where they've said they are going to do things over the last several years and then they didn't follow through," he said, listing the proposed monetization of Yahoo Japan, real estate and intellectual property as examples.
Yahoo is expected to report its first-quarter earnings Tuesday after the bell. Wall Street is expecting the company to report revenue of about $1.08 billion compared to $1.23 billion in the comparable year-ago period, according to a consensus estimate from Thomson Reuters.
In 2014, Starboard issued a letter to Mayer encouraging her to explore a strategic combination with AOL. Verizon, AOL's new parent, is widely reported to be one of the main bidders for Yahoo.
—Reuters contributed to this report.