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Yelp hires Evercore for activist defense after hedge fund calls for sale of company and board overhaul

  • Yelp has hired Evercore to help defend itself from activist investor SQN, who last month called for a board skake-up and potential sale of the company.
  • SQN says Yelp has missed investor expectations in 12 of the last 19 quarters.
  • The hedge fund has urged shareholders to replace three of Yelp's eight directors when they come up for re-election this year.

Alex Sherman

Yelp, the review site for restaurants and local businesses, has hired Evercore to help defend the company against an activist investor, who recently called for a board shake-up and potential sale, according to people familiar with the matter.

Hedge fund manager SQN, which owns 4 percent of Yelp shares, released a presentation on Jan. 16, about the company's "significant underperformance," and said that based on its own research "an immediate sale to a private equity firm could yield a $47 to $50 stock price." The shares are currently trading at $37.59.

Yelp co-founder and CEO Jeremy Stoppelman and the board have now tapped Evercore to work with the company and explore the market, but the bank hasn't started running a sales process, said the people, who asked not to be named because the matter is confidential. At the current market valuation of over $3 billion, there are few, if any, "credible buyers," one of the people said.

Representatives from Yelp and Evercore declined to comment.

SQN's report suggests that the company is worth $4 billion or more. But SQN, a technology-focused hedge fund with more than $1.1 billion in assets, is a virtual unknown in the world of activist investing, where Carl Icahn, Bill Ackman and Daniel Loeb are among the most recognizable and influential players. Yelp is SQN's first activist investment.

Yelp has struggled to fend off competition from Google, which is both the largest search engine and a rival in the reviews market. Google reviews and Instagram photos of food and restaurants have given consumers new ways to find recommendations for restaurants.

Yelp has also lagged behind other companies that offer tools and technology to measure the effectiveness of ad spend, and has failed to keep up with Google's local discovery features, SQN claimed in its investor presentation.

Shares of Yelp have plunged by more than half over the past five years and are down 15 percent in the past 12 months. SQN said that Yelp has underperformed the Russell 2000 Technology Index by 117 percent and its own peer group by about 74 percent over the last half-decade.

Yelp has been on the M&A market in the past. The company hired Goldman Sachs to run a sales process in 2015. That effort ended when Stoppelman decided not to move forward despite having several interested buyers, people familiar with the matter said at the time.

The Evercore-led process could end up with the company looking for a buyer, especially if Yelp shares were to fall, sources told CNBC. Yelp hasn't made any decisions about selling this time around, the people said.

SQN said in an email to CNBC that it knows of "multiple buyers" that would be interested in buying Yelp.

Here's the firm's full statement.

As we made clear in our detailed presentation released in January, SQN believes there are multiple pathways to significant value creation at Yelp, including through the company remaining public and implementing our recommendations, or through a sale of the company to a large universe of private or strategic buyers. We are unclear on how anyone could credibly state that potential buyers don't exist without having run a fulsome strategic process. As we've previously stated, we know of multiple buyers who would be interested, and we believe these potential acquirers would be eager to participate in such a process.

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