New York Times News Service
CEO Jerry Yang remains confident he can turn Yahoo around. |
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SUNNYVALE – Jerry Yang, the soft-spoken chief executive of Yahoo, rarely becomes animated, at least in public. But ask him about his company's lackluster performance over the past year, and he will begin to pound the table – albeit ever so lightly – punctuating his answer with a dose of impatience.
“We have a plan,” Yang said last week here at Yahoo's headquarters. “We want to grow the business over a three-to five-year period. We are executing against that plan. And we are still doing that despite all the stuff that's happened to us.”
He refers to the turbulence that has engulfed Yahoo since Jan. 31, when Microsoft made an unsolicited takeover bid. At the time, conventional wisdom was that Microsoft and its hard-charging chief executive, Steven A. Ballmer, would quickly swallow the company.
But Yang has emerged as an unlikely survivor – at least for now. He beat back Ballmer, whose offers to buy all or part of Yahoo were considered inadequate by Yang and his board. And he rebuffed Carl C. Icahn, the activist shareholder, who tried to seize control of Yahoo but settled for three seats on an expanded board.
Even so, the question remains whether Yang is the right man for the job.
Many shareholders are furious with him. With the stock trading at about $20, far below the $33 a share Microsoft offered in May, the failed merger negotiations have cost Yahoo investors nearly $20 billion. “I think they had an opportunity to get something done in the palm of their hand, and they bungled it,” Eric Jackson said after the company's annual shareholder meeting on Friday.
Jackson is part of an individual shareholder group that collectively holds about 3.2 million Yahoo shares. On Friday, investors controlling about 15 percent of the shares represented at the meeting voted against Yang's re-election to the board – signifying lingering concerns about his leadership.
Yang says he understands shareholders' frustrations. But he says Yahoo was willing to sell itself at the right price and blames Microsoft for the breakdown in talks.
For now, he says he is looking forward to giving his full attention to Yahoo and transforming it into the most popular “starting point” for Internet users. The company says it is also developing a powerful new advertising system that can place ads on Yahoo and other sites across the Internet.
For many shareholders, the idea that Yang and his team are changing Yahoo for the better is little more than an illusion.
“These guys are just drinking their own Kool-Aid,” said Mark Nelson, a co-founder of Mithras Capital, which owns about 1.7 million Yahoo shares. “They don't get it. They don't understand the realities of their business.”
Nelson's comments echo the views of many shareholders and analysts who say that under Yang, a co-founder of Yahoo in 1994, the company has done little to restore its competitive position with respect to Google. They say Yahoo has been indecisive, resulting in incremental changes.
Yahoo's results have continued to disappoint. Revenue grew 6 percent in the most recent quarter versus the same period last year, far slower than Google's 39 percent. And Yahoo's stock has continued a steady slide that began in January 2006 under Terry S. Semel, then the chief executive. The shares are down about 27 percent, near a four-year low, since Yang took over 13 months ago. In the same period, the Nasdaq has lost 11 percent.
Yahoo's chairman, Roy Bostock, said the board has no plans to replace its CEO. “I have absolute confidence in Jerry and the management,” he said last week.
At last year's annual meeting, Semel vowed to remain in place, with the board's backing. He stepped down a week later.
Yang's appointment as CEO brought hope to Yahoo employees and shareholders. Under Semel, the company had become slow and bureaucratic. It had failed to jump on Internet trends such as online video and social networking. Most important, it was falling further behind Google in the lucrative online search business.
As a founder, Yang, a polite and consummate “nice guy,” was well-liked inside Yahoo. An engineer with a keen vision of where the Internet was heading, he was seen upon becoming CEO as having a shot at reviving a company that by many measures remains one of the most successful businesses on the Internet. With some 500 million users worldwide, Yahoo is one of the Web's most-visited sites, as well as the top Web e-mail service, and runs top-ranked news, sports and finance sites.
It remains No. 2 in search and is the largest seller of banners and other graphical ads online.
But critics say Yang has been slow to make tough and necessary choices. For instance, Yahoo pursued an advertising partnership with Google, which many investors had long recommended, only after Microsoft made its bid. And they say Yang and his team have been more focused on plotting new strategies than on carrying them out.
Shortly after taking over, Yang began a 100-day strategic review of Yahoo's business. He promised investors that there would be “no sacred cows,” raising expectations that he would finally narrow the focus of a company that was trying to be all things to all people on the Web.
He appeared to back the imperative to trim some of Yahoo's products and services.
The Yahoo chief charged a group of executives with identifying projects that could be cut. But when the group made its recommendations, including closing a long list of properties such as OMG.com and television and education sites, Yang stalled, current and former executives said.
Then, in late January, he stunned Wall Street, saying that 2008 profits would be lower as Yahoo planned to invest heavily in a new display advertising system and a project to rewire the company's technological underpinnings. Investors did not think that Yahoo had the dry powder to fire.
Yang's announcement sent Yahoo shares down nearly 10 percent, giving Microsoft an opening. The next day, he received an urgent call. It was Ballmer, to alert him that the next morning, Microsoft would make public its bid for Yahoo.
With the fights with Icahn and Microsoft over, at least for now, some Yahoo employees say Yang has appeared more upbeat and confident.
He laughed at that observation, saying it probably says more about the mood of Yahoo than about any change in himself. Employees are more upbeat because Yahoo hit its financial projections for two quarters, despite the turmoil and a slow economy, Yang said. And Yahoo has delivered a long list of projects, he said, like improvements to its search offerings and an early version of its new advertising system.
For investors, a vital question is whether Yang's plan to expand Yahoo can ever deliver the kind of value that Microsoft offered. Many of Yahoo's largest shareholders wanted to sell the company to Microsoft. But they are divided over whether Yahoo or Microsoft should be blamed for the failed negotiations.
A turning point came on May 3 at a meeting in Seattle. Ballmer had just raised Microsoft's offer to $33 a share, or $47.5 billion. Yang said the board wanted $37 a share.
The Yahoo team expected that the meeting would be the beginning of serious talks. But Ballmer said Yahoo's counteroffer was a sign it was not interested in a deal. An hour after Yang returned to California, Ballmer called to say he was withdrawing Microsoft's offer.
Yahoo has since said that it would consider a sale at about $33 a share. Microsoft has insisted that it is no longer interested. Instead, it has tried to buy Yahoo's search business. Yahoo has said that those offers were not in shareholders' best interest.
The companies blame each other for the failure. “Right from the beginning we were open to doing a deal,” said Bostock, the Yahoo chairman. “It was simply a matter of getting the right price and getting the deal terms negotiated. They started backing off early on in the process.”
Microsoft sees it differently. “Microsoft diligently pursued a proposed acquisition from the day we made our offer on Jan. 31 to the day we withdrew it on May 3,” said Bradford L. Smith, Microsoft's general counsel. But Yahoo's management and board failed to engage in meaningful negotiations for weeks, Smith said. Some shareholders are predicting – or perhaps merely hoping – that one way or another, Yang will take the fall for the failed deal.
“My belief is that if within a month or two there isn't something transforming in the works, the major shareholders will put enough pressure on the company that he will be forced out,” said Nelson at Mithras Capital.
