Activist buys up stake in Yahoo

An activist investment fund has disclosed that it's bought a 5.2 per cent stake in troubled web portal Yahoo and called for sweeping changes to the board.

A public letter from Daniel Loeb, chief executive of investment adviser Third Point, comes after Yahoo's board fired CEO Carol Bartz on Tuesday after two-and-a-half years on the job, a move she bitterly criticised in an interview published on Thursday.

Loeb said the board made a "serious misjudgment" in hiring Bartz,and he criticised it for taking so long to fire her given her "abysmal performance".

He slammed Bartz personally for alienating the company's Asian partners — Alibaba Group, Softbank and Yahoo Japan — as well as Yahoo's shareholders, analysts, bloggers, customers and employees.

"While the decision to hire her alone is grounds for questioning the board's competence, its willingness to turn a blind eye to these serious problems ... is even more troubling," Loeb said.

Loeb also said it is now apparent that the board made a "gross error" in turning down Microsoft's takeover bid in 2008 for $US31 a share. Microsoft raised its bid to $US33 per share, or $US47.5 billion, before withdrawing the offer in May 2008. Loeb believes Yahoo's intrinsic value is now around $US20 per share.

"This mistake is all the more frustrating given Yahoo's current depressed stock price," he said.

Loeb calls for the resignation of chairman Roy Bostock, who championed Bartz and "led the charge against the Microsoft deal", as well as directors Arthur Kern, Vyomesh Joshi and Susan James.

Third Point's investment in Yahoo — in which it amassed 65 million shares and immediately exercisable options since August 8 — makes it Yahoo's third largest outside investor.

In an interview with Fortune magazine published on Thursday, Bartz used profanity to describe her firing by Yahoo's board. She said Bostock read from a lawyer's prepared statement when he spoke to her by phone to dismiss her on Tuesday.

Bartz also depicted her as a scapegoat for a Yahoo board trying "to show that they're not the doofuses that they are".

Yahoo hired Bartz in January 2009 to engineer a turnaround, but she was criticised for cutting her way to profits while not increasing revenue as companies like Google and Facebook took off.

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