Yahoo board meets for second day, stock falls

Kaja Whitehouse | USA TODAY

NEW YORK — Yahoo shares traded lower Thursday as the board met for a second day to discuss the company's future, including a potential sale of its core Internet assets.

Hedge fund manager Jeff Smith of Starboard Value kicked off Day One of the three-day powwow by urging the board to abandon its planned spin-off of its 15% stake in Chinese e-commerce firm Alibaba and focus instead on selling its core Internet assets, such as online search, news and email, according to a person with direct knowledge of the meeting.

News that the board was considering Starboard's plan sent the beleaguered tech company's stock soaring Wednesday, up 5.75% to $35.65.

But the stock lost some of those gains Thursday amid continued uncertainty over the company's future, as well as losses in shares of Alibaba.

Yahoo shares ended the day lower Thursday 3.7% to $34.34 a share, underscoring concerns Yahoo is at a crossroads and investors are eagerly awaiting the outcome.

Yahoo CEO Marissa Mayer was brought in to turn the company around in 2012, but her efforts have largely fallen flat.

Mayer has been criticized for spending too much money on acquisitions that have not paid off, including $1.1 billion on blogging company Tumblr. Yahoo is expected to generate about $4 billion in adjusted earnings in fiscal year 2015, down from $4.4 billion in 2014.

Another concern for Yahoo is its massive stakes in Alibaba and Yahoo Japan, a joint-venture with Softbank. Under the current setup, Yahoo's core assets are overshadowed by those stakes, giving Yahoo's actual businesses a valuation of less than zero.

Yahoo is valued at $33.7 billion, less than its combined stakes in Alibaba, worth $32.2 billion, and Yahoo Japan, worth $8.8 billion

An Alibaba spin-off, which Mayer agree to earlier this year, would have helped generate value for shareholders. But cheer over the spin-off was dampened amid questions about whether the IRS would allow it to move forward free of taxes.

That prompted Starboard to change its tune, calling on Mayer and the board to leave its Alibaba shares right where they are in a letter dated Nov. 19th. Starboard said Yahoo could instead squeeze value out of its core assets, including online search, by putting those assets on the auction block.

"The best outcome for shareholders would be for Yahoo’s board to immediately abandon the spin and commence a competitive process to sell its valuable core business at the highest price possible," Smith said in an emailed statement. "It is imperative for Yahoo’s board to understand its fiduciary responsibility is to the shareholders and act as proper stewards of shareholder value.

Yahoo has declined comment on Starboard's letter.

Wall Street analysts and Yahoo investors think shoppers could include phone giant AT&T, search engine companies Google and Microsoft, and even Rupert Murdoch's NewsCorp, which owns news publications like The Wall Street Journal.

Follow Kaja Whitehouse on Twitter: @kajawhitehouse