[Long YHOO]
Yahoo! symbol design (Photo credit: Wikipedia)
There have been lots of negative opinions thrown around about Dan Loeb being able to sell 40 million shares of
If you're a Yahoo employee, it might be hard to interpret all the negative comments.
So, let me try to wade through all the assertions and opinions.
Henry Blodget asked how Loeb's stock sale was not "insider trading."
Henry basically said, Loeb knew 3 directors were going to resign (including him) and knew that would cause the stock price to drop, so he orchestrated a big stock sale to cash in before it took effect.
No. Henry's got the causality reversed. Loeb and his two other directors resigned because they were selling an amount of stock that took Third Point's ownership of Yahoo to below the 2% level. Before he came on to the board, he agreed with Yahoo to vacate his board seats ever fell below that threshold (they were closer to 5% at the time he joined the board).
"Insider trading" would have been if Loeb traded on some information that only insiders knew about. He didn't. His sales and their timing were completely legal.
Robert Cyran of Reuters Breakingviews said that Loeb's stock sales hurt Yahoo investors twice over. Once because "regular shareholders [are seeing t]heir stock has been shunted to the back of the buyback line." And twice because there are no "obvious candidates on the board to take on Loeb’s role either as a restraint on Mayer’s ambitions or as an advocate for proper capital allocations."
On the first point, "regular shareholders" can sell their Yahoo stock at any point they wish. The market is open every weekday from 6:30am - 1pm Pacific Time. If any shareholder feels regret that they didn't get to sell their stock at $29.11/share like Loeb did with it now trading at $28.11, I would ask them why they didn't sell all their stock at $29.83 on July 18th? However, they still must be feeling good that $28.11 is a heck of a lot higher than below $24 where it was on June 24th.
No one's been shunted anywhere. They can sell any time they want - including Loeb with his 40 million shares sold a week ago or his remaining 20 million shares.
On the point about Loeb no longer being around as a "restraint" on Mayer, I would say that it's ironic that we're hearing these complaints now when, a little more than a year ago, people were saying Dan Loeb shouldn't be on the Yahoo board because he wasn't from Silicon Valley.
But, more seriously, speaking as a proud remaining Yahoo shareholder, I would say that it's up to all shareholders - including employees with Restricted Stock Units - to be vigilant and outspoken for ourselves. The old Yahoo board led by Roy Bostock and Patti Hart felt empowered to ignore the wishes of shareholders. I think that's changed completely over the past year and the new board wants to ensure that keep up the goodwill and momentum they have built over the past year with all shareholders and employees.
But no shareholder can expect Dan Loeb to be their only voice on the Yahoo board. If they have views, they should share them.
Steven Davidoff of the New York Times' DealBook said that "Yahoo's Share Buyback is Legal But the Timing is Suspect."
Really? Just what about the timing is suspect?
Davidoff's complaint is that Loeb took profits in part of a trade too early. He argues that, when Loeb sought a board seat last year, he argued that he wanted to see the company turnaround, and that job is not yet complete.
Davidoff says: "Perhaps the biggest lesson here is for other companies and shareholders. Just because an activist investor offers up directors and their services doesn’t mean they will stick around. If companies are truly looking for investors to stay for the long term, they should bargain upfront."
You know there was an "activist investor" offering up their services to stick around for a long time at Yahoo more than 18 months ago: Silver Lake and Marc Andreessen. Do you recall that they wanted to take Yahoo private at something like $18/share? That now seems like outright robbery with the shares above $28, but there were lots of wise people at the time claiming that Yahoo had no future back and should take the money and run.
It's silly to criticize the Yahoo board for failing to bargain upfront with Loeb, or with Loeb for leaving. By allowing Loeb on the board in the first place, Yahoo's board allowed a chain of events to occur which did unlock value in the shares for all shareholders to enjoy the fruits of instead of just Silver Lake's principals and investors.
A few days ago, after all these critical posts came out, Yahoo disclosed that it had negotiated with Loeb as part of the stock sale that he would no longer increase his stake in the company above 3% or seek to get on the board for a period of 3 years. It's a stand still agreement. So, the board did do some bargaining here, both upfront when he came on and when he left.
I guess one could fairly ask "Should the board have negotiated to get him to step down if he sold his shares below a certain level?"
From the start of his proxy contest, I supported Loeb getting a seat on the board. However, the Yahoo board had gone through the episode of fighting off and then agreeing to have Carl Icahn on the board in 2008 and 2009. I think they instinctively thought they had to keep this outsider off the board and, once they agreed to bring him on after a lengthy fight, they got him to agree to terms under which he'd step off down the road.
Once Loeb decided he would sell, he was bound to agree to the terms he had previously signed up for when joining the board and that meant vacating his 3 seats and not fighting to get back on the board.
But why did he sell the majority of his stock now? Has he lost faith in Yahoo? Is all the "smart money" now out of Yahoo?
I don't know for sure, as I haven't talked to Loeb or anyone at Third Point about this.
What I do know is that Loeb used to be considered an "insider" as he was a director. That restricted when he could sell certain amounts of stock to certain windows. He got a window after the last earnings and he chose to sell and to keep his remaining $560 million worth of Yahoo stock as a non-insider. This means he can pretty much sell it whenever he wants going forward.
I would think he likes that kind of flexibility going forward for that size of a position (roughly 4% of his firm's total assets under management).
(Of course, according to the pundits, since I'm still holding Yahoo shares, I'm "dumb money," so this could all just be the "dumb money" in me talking.)
Rolfe Winkler of the Wall Street Journal said that Yahoo's board did Dan Loeb a huge favor buying 40 million shares and then losing $50 million on their "trade."
Well, as of Friday's close, Yahoo's down $40 million on this trade, but the board certainly doesn't look at this as a trade. They had a choice to make when Loeb came to them to propose the sale: do they buyback and retire the shares at the close of the recent day's price - or do they ask him to do a self-tender (as Bob Chapman argued in the Wall Street Journal)?
There are different ways to skin a cat. But there's certainly nothing wrong with the approach Yahoo's board took. On the day before the deal was announced, Yahoo's stock price was going down all day - when Loeb was selling a smaller number of shares into the market. It seemed some Wall Street actors picked up that Loeb was selling some shares (2 million). Imagine how the stock would have reacted if 4o million had suddenly gone into the market? Would Yahoo's shareholders been better off with that approach?
In the way the board did it, 40 million shares are immediately out of service. The share count shrinks roughly 4%. Yes, the stock price initially drops and people have to adjust to the news but the band-aid gets pulled off quickly and we move on.
I think a lot of these critical posts portray Loeb like he's all-seeing and all-knowing. He sold at the top (in the $29s) while the rest of us poor folks have to deal with a stock price in the $28s.
I'd go back to the earlier point that this was a stock that was trading in the $23s on June 24th. Now it's in the $28s. It was in the $29s a couple of days after earnings a couple of weeks ago (on the backs of good Alibaba numbers), a window opened, and Loeb decided to sell.
Does he look smart now when the stock is below $29? Sure. But what will he look like in a few weeks if the stock price is over $30?
I suspect Loeb won't lose much sleep over leaving money on the table with Yahoo. He's scored nearly a triple and made over a billion dollars for his investors. If he leaves a little money on the table, so what? He will still participate with the remaining half a billion dollars he has in there (or not if he sells).
According to Bloomberg, the largest percentage of hedge fund owners in Yahoo maxed out in January - with the stock at $20. Since then, hedge fund managers have consistently sold down their holdings from 29% to now 16%. And those "dumb" mutual funds have increased their ownership in the company from 50% to 69% over that same time. Any "smart" seller of Yahoo shares in mid-January has since missed out on a 48% gain in the shares.
And if someone quit Yahoo a week ago and feels a sense of injustice that the stock price dropped $2 before they could sell all their shares, I don't have much sympathy. They should be grateful they quit last Friday and not a year ago - like so many did, liquidating their shares in the mid-teens.
For remaining employees, I would say these daily gyrations in the stock price don't matter much. Where the stock price will be in 6, 12, 24, and 48 months depends on all the hard work you're putting into products, platforms, and ads today.
With or without Dan Loeb, Yahoo is a great company that will continue to undergo a massive turnaround.
