Friday, August 1, 2008

Yahoo! Shareholder Meeting, August 1, 2008 (YHOO)

(Susan Decker and me)

Yahoo held its 2008 shareholder meeting at the posh Fairmont Hotel in downtown San Jose. Security at the meeting was tight--proxy statements were checked prior to providing a wristband required for entry.

Yahoo did not skimp this year on the food--we had coffee, juices, and pastries galore (the croissants were especially tasty). In fact, the hotel put out so much food, most of it was untouched.

Outside of the meeting hall were several kiosks highlighting Yahoo's different areas, such as search, mobile, green (environment) and advertising. The "green" area hasn't received much attention, but it's interesting. Go to for more information--the Yahoo employee referred to the "gift guide" tab as one convenient way to shop for eco-friendly gifts.

The formal part of the meeting was more interesting than usual, because some ballots had to be re-done after the Yahoo-Icahn agreement invalidated Icahn's slate and gold card proxies. The presenter indicated votes for Icahn "will not be cast."

Several pension funds talked about their proposals. The first proposal--pay for superior performance--fell flat because the delivery was stunted and overly prepared.

The second presenter did better--he was from a NY Pension fund and chastised Yahoo for its political censorship. He said "Yahoo actively participated in these human rights abuses," and should "not engage in proactive censorship." His proposal also appeared to demand more public transparency when Yahoo complies with foreign subpoenas for information.

The third presenter, from Harrington Investments, dealt with human rights also. The presenter said that Yahoo "lacked true morality, which is the morality of obligation," and failed in its fiduciary duties.

Voting results were released after the meeting, and Yahoo prevailed on the shareholder proposals it asked shareholders to reject. Shareholders also elected all of Yahoo board members by overwhelmingly wide margins, except for Roy Bostock and Arthur Kern, both of whom had about 20% of shares withheld in opposition. Mr. Bostock earlier had 34% of the vote withheld in protest, and many shareholders continue to revile him for his involvement in outsized compensation despite Yahoo's lagging share price.

As a result of placating Carl Icahn, Yahoo was able to dissolve shareholder frustration; make its annual meeting into just another regular meeting (much to the chagrin of most media, who appeared from numerous outlets); and focus on remaining independent. My perception was Mr. Bostock is now responsible for the negotiating with Microsoft, while Sue Decker and Jerry Yang are focusing on how to maximize ad and search revenue.

Mr. Roy Bostock, Chairman of Yahoo's Board, gave a presentation after the formal meeting had concluded. I'm sure he intended his speech to be a fiery "Sinners in the Hands of an Angry God" type, but it fell flat. The more Yahoo talks about Microsoft, the more it sounds like a jilted but still optimistic ex-girlfriend. Bostock said Yahoo was a "victim of misunderstanding." He indicated they had entered into an agreement with Google as part of a strategic plan, but never elaborated on the details of the deal. Bostock indicated, "At no point did this board or management in any way ever resist Microsoft's proposal," making Yahoo sound more and more like a hopeful ex-girlfriend.

The rest of Bostock's speech seemed to focus on blunting a minority shareholder lawsuit by blaming Microsoft for the failed deal. Bostock said Yahoo "proactively" evaluated Microsoft's original and later hybrid proposal and then seemed to get unnecessarily aggressive when he said, "We called the shots." Not exactly the kind of comments that would make Microsoft too happy about a partnership or a deal.

Bostock said the 31 dollar bid was the only express bid, and the express offer "substantially undervalued Yahoo." Bostock then made the typical comments about maximizing shareholder value and then characterized the 33 dollars a share offer as an implicit Microsoft offer rather than a Yahoo counteroffer. Yahoo had a "long-term strategic vision," he said, and it was a "burden to deal with all these offers." It was a stunning statement by a company that basically cost its shareholders a 50%+ premium.

Jerry Yang made the next presentation. His public speaking skills have dramatically improved. He was prepared and polished. He talked about internet opportunity, referring to the projected growth in "incremental internet users" (335 million). 76% of these users would come from Asia, Pacific and emerging markets. Mr. Yang said Yahoo was investing in mobile and emerging markets and had an enviable "collection of assets."

Yahoo receives 3.6 billion visits per month. 3.6 billion visits a month is incredible. An advertiser can hardly ignore Yahoo if it wants broad and international placement of its product or content. Mr. Yang ended by talking about opening up the advertising platform, i.e. making it easier for advertisers to buy ads.

Susan Decker spoke next. She has a firm grasp of Yahoo's diverse businesses. She indicated Yahoo's top 200 advertisers bought 90% of display ads (e.g., the very large ads, especially for movies, on Yahoo's home page). Yahoo was also improving its "sponsored search" advertising process, where advertisers could big for a term like "plasma tv" in an auction.

Ms. Decker then talked about "Buzz," and other social networking tools. She referred specifically to search innovation, "Search Monkey," and other tools to make search engines more user-friendly and integrated. It appears Yahoo is trying to make its platform similar to Facebook so it can continue to be a one-stop shop for users. Sue Decker ended by reading some positive reviews of Yahoo published by various media outlets. Her skill and presence are such that she could pull this off without appearing arrogant.

The CFO was the final speaker. His slides showed "operating cash flow" has been stagnant since 2006, but he indicated the reasons were acquisitions and other growth-driven items. Yahoo has 3.2 billion dollars in cash. Let me repeat that--3.2 billion dollars in cash.

Yahoo also owns stakes in (China), Yahoo Japan, Gmarket (Korea), and (China). Yahoo estimates these stakes being worth $7.01 per share, not including and One source of disconnect: Yahoo kept talking about emerging markets, but its partners are all in developed economies like Japan and Korea, except for possibly China. I don't see any partnerships in India, Eastern Europe, or Turkey, for example. did a good job summarizing the meeting itself and the Q&A session:

The comments under "Fantasy Sports" and "A New Metaphor" referred to my comments at the meeting. I basically said Yahoo--more specifically Roy Bostock--needed to stop talking about the failed Microsoft deal. We get it--it failed. Using more polite language ("bad breakup"), I suggested Bostock stop acting like a spurned ex-girlfriend, and perhaps Microsoft might come back and be more reasonable. No one wants to deal with a bitter ex who keeps ripping you in the press. It's just common sense. I also recommended Bostock stop using the term, "long term strategic plan"--it sounds hollow right now, and if he wants to use it, he should use it when Yahoo's stock price goes above $30 per share.

I praised Jerry Yang for being the founder of the company, reminding everyone that without him, Yahoo would not exist. I said the criticism relating to the Chinese blogger controversy was unfair, because Mr. Yang never intended for the end result to occur. At worst, I said, you could argue he and the company were naive, but not malicious (even though it was Semel who released the information, Yang apologized publicly for it, associating himself with the incident). I continued, saying perhaps a temporary sabbatical would be best for the company, because Mr. Yang is now associated so deeply with the blogger controversy, it's hard to focus on Yahoo's actual business. Unfair or not, he has become a lightning rod for criticism (two of the shareholder proposals dealt with human rights violations), and with Decker already at the helm, perhaps she could take over temporarily as CEO and President. I also praised Yahoo's fantasy sports platform/franchise.

Jerry Yang seemed pleased with my comments, chuckling at the ex-girlfriend analogy, and pointed out he was not the CEO at the time of the blogger incident. He said he had "condemned the Chinese government" for its actions, something I had not read or heard before. Yang's comment against the Chinese government surprisingly did not lead to major publicity.

Decker said the fantasy sports franchise fit with Yahoo's desire to move more into social networking and demonstrated Yahoo's early adoption of social networking.

Bostock made a remark about how he wouldn't compare the Microsoft situation to a "romantic relationship." Despite his attempt to appear strong, Bostock ended up looking clueless every time he strayed from prepared comments. Bostock isn't a natural when it comes to dealing with the public. If he keeps opening his mouth about Microsoft, he'll start to look like Glenn Close in Fatal Attraction soon ("We called the shots" begins to look eerily similar to "Don't you ever pity me, you smug bastard."). If he's trying to play hard to get, he's not doing a good job--and he's certainly not endearing himself to Microsoft or anyone else with his rehashing of the offers and counteroffers. Obviously, there was some miscommunication. A two dollar difference ($31 or $33) doesn't ordinarily derail a deal. Either play nice so everyone can sit together again, or walk away--it's so simple, even a Harvard MBA should be able to get it.

Other questions involved an accusation Yahoo had not sold Yahoo Japan for the highest value. Yang said he recused himself on the Yahoo Japan board at the time of the transaction and sold a stake at the particular price because of tax implications, preferring to get a continuing revenue stream over ten years.

The same shareholder complained about Sue Decker's other board memberships, such as Berkshire Hathaway, Costco, and Intel. Other board members leapt to Sue's defense, saying she was a hard worker and answered emails at 3AM and had a great grasp of the company. Ms. Decker responded politely and added she specifically rejected several invites to join other companies' audit committees to save time for Yahoo.

Bostock rejected a request for him to step down and said director compensation was not high, disputing the numbers the shareholder provided. The shareholder responded that his numbers came from the proxy.

Other shareholders complained not all the directors had shown up and some did not even own stock in the company. Another shareholder complained about the lack of female board members.

Stephen Shankland and Wendy Tanaka wrote accurate summaries of the meeting:

Here is the BBC's take:

All in all, Yahoo had a successful day and pulled off a professional event after settling with Carl Icahn earlier. What was projected to be a media circus was just another shareholder meeting. Jerry Yang's image went up dramatically--he looked poised, prepared, and fresh. Meanwhile, Roy Bostock looked tired, bitter, and combative. I added 50 shares of Yahoo, a nominal amount, when I returned to my office. I like the company, but with Bostock around, I'm not sure a deal with Microsoft will get done anytime soon. I was hoping Decker could pull some strings with her colleague Warren Buffett, who would talk to Bill Gates, but now it all seems too complicated. Almost like a messy, bad breakup.

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