Boo hoo for Yahoo! shareholders - will Mayer scrap $4.2bn pay-out?

In a further blow to Yahoo!'s long-suffering shareholders, new chief Marissa Mayer may scrap their pay-out from the Alibaba deal.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Less than a month into the job, Yahoo!’s new CEO certainly isn’t making many friends at the internet giant. According to regulatory documents filed late last night, the $4.2bn that had been earmarked for shareholders – profit after tax from Yahoo!’s $7.1bn sale of half its Alibaba stake - may end up funnelled into acquisitions instead.

As you can imagine, that has gone down like a lead balloon with Yahoo!’s shareholders, and shares dropped 3% in extended trading last night.

But Mayer insists that her plans for the cash will ‘enhance long-term shareholder value’ – in translation, make them much more money in the long run. She intends to conduct a painstaking review of Yahoo!’s operations to work out whether the cash would be better spent on product innovation, acquisitions, or on drastic restructuring. Yahoo! is planning to shed around 1,500 jobs in the second quarter. In the long run, redundancies save money. In the short-term, they can be hugely expensive.

But Mayer may not find it so easy to snub shareholders. Yahoo!’s board reiterated that the Alibaba pay-out was imminent just three weeks ago. On the same conference call announcing that they had poached Mayer from Google, in fact. Any U-turn on this promise will require the full backing of the board. And guess who stands to profit most from the $4.2bn pay-out? Take Daniel Loeb, director on the board and owner of a 5.8% stake in Yahoo! – will he vote against his own windfall?

You have to feel for Yahoo!’s shareholders. In 2008, when co-founder Jerry Yang refused to sell to Microsoft, they lost out on some $33 per share. As of yesterday, Yahoo!’s share price stands at less than half that: $15.46. While Google’s revenues have ballooned in recent years, profiting from the flow of advertising spend out of traditional publishing and onto the web, Yahoo!’s revenues have been completely eclipsed by the search giant. Google’s market cap currently stands at $180bn; Yahoo is valued at just $19bn. And now, with the whiff of a few mill in their nostrils, they are being passed over yet again.

Mayer had better know what she’s doing. Lesson one in how to lose friends and alienate people: promise them money, then change your mind. And she is Yahoo!’s third CEO in the space of a year. But on the other hand, this is the woman credited with making Gmail a runaway success – she may have a few tricks up her sleeve as regards what else she could do with the money. MT hopes so, for Yahoo!’s shareholders’ sakes.

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