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September 7, 2011

For Yahoo, Firing Of Carol Bartz(CEO of Yahoo Inc. May Be Beginning Of End

The company confirmed Tuesday that Carol Bartz has been ousted as CEO, with CFO Tim Morse taking over on an interim basis. First reported by AllThingsD’s Kara Swisher, the news follows a post Swisher wrote earlier in the day that suggested a variety of potential investors were circling the company, effectively looking to pick away the meat from what remains on the Internet company’s bones. Among those named as possible bidders: News Corp., AT&T, Verizon and various private equity firms.
Yahoo said it has formed an “Executive Leadership Council” to support Morse until a permanent CEO is chosen. The council also will support a “comprehensive strategic review” by the company’s board. Chairman Roy Bostock said in a statement that the board is “committed to exploring and evaluating possibilities and opportunities that will put Yahoo on a trajectory for growth and innovation and deliver value to shareholders.”
Earlier a variety of potential replacements for Bartz, including recently installed Yahoo Americas chief Ross Levinsohn, among others. But the focus on the Street won’t be on succession. Investors instead will be zeroed in on the break-up value of the company.
Indeed, after a series of essentially failed CEOs – Terry Semel, Jerry Yang and Bartz – I suspect there will be increasing concern on the Street that Yahoo is simply not governable in its current state. While Yahoo gets huge traffic to some of its key properties, like Yahoo Finance, Yahoo Sports and Yahoo News, the company is clearly struggling to find an identity at a time when consumers are spending more and more time on social networking sites and mobile devices. There lately has been increasing pressure from the Street for the company to monetize its investments in Yahoo Japan and Alibaba Group – pressure that the company may no longer be able to resist. However, the Street’s confidence in the value of Yahoo’s Alibaba holdings has been tarnished by the recent public squabbling between Bartz and Alibaba foudner Jack Ma over the ownership of the Alipay online payments business.
Bartz had been scheduled to speak to investors tomorrow at the Citibank technology conference in New York; that is now not going to happen.
In May 2008, in a move that effectively saved Microsoft CEO Steve Ballmer’s reputation from almost certain ruin, a Yahoo board led by Jerry Yang rejected a $47 billion, $33-a-share takeover bid from Microsoft; the company’s now-laughable excuse is that the offer was too low. Yahoo shares are trading sharply higher after hours, in obvious anticipation that by firing Bartz, for all her entertaining, salty bravad0, the board clears the way for a sale or dismantling of the company. But can they find a buyer?
Here are a few scenarios that will likely be floated in the days ahead:
  • Microsoft buys Yahoo, at last: That’s possible; Microsoft already provides Yahoo with search services. But you would imagine that Ballmer would think long and hard about going that direction again.
  • Yahoo combines with AOL: Yahoo still has a much larger market cap – about 10x larger, in fact – so AOL can’t buy Yahoo. But if you shed the Asian assets, them used the cash to pay a big dividend or buy back a large chunk of equity, it just might be possible to dream up a scenario where AOL teamed up with the core Yahoo business, with the Alibaba and Yahoo Japan stakes stripped away. But you’d also have a classic case of tying two bricks together to make them float: you’d need to prove that there’s a real business to be built focusing exclusively on Web-based content.
  • Yahoo sells the Asian assets; private equity investors buy the rest: That only makes sense if you think Yahoo has enough of an annuity business in its advertising operations to support a debt-financed buyout. Possible, but no slam dunk, and will take some creative thinking from whoever would take the plunge.
  • Yahoo unloads the Asian assets, then sells the rest to a strategic  buyer. OK, that’s possible, but which buyer? Despite Swisher’s story, I’m not convinced that it makes sense for either AT&T or Verizon; and given the debacle that was the MySpace acquisition, would News Corp. really want to take a stab at turning around Yahoo, especially given their own recent troubles?
Should be entertaining to watch; but might not necessarily provide a big payoff for investors. We’ll see.
In late trading, YHOO is up 77 cents, or 6%, to $13.68.

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