Yahoo Taking Baby Steps in Leveraging Assets

Yahoo Inc. (Nasdaq: YHOO) continues to reposition itself with a deal to sell back half of its 40 percent stake in Alibaba.com Hong Kong Ltd. Exiting this investment is but one of many steps Yahoo is likely to take as it tries to find its footing -- all while searching for yet another CEO.

The two companies agreed to a plan for Yahoo to shed half its investment in Alibaba for $7.1 billion. The Chinese e-commerce company will pay Yahoo $6.3 billion in cash and up to $800 million in newly issued preferred stock.

Yahoo originally invested $1 billion in Alibaba in 2005. The new deal includes plans to monetize Yahoo’s remaining 20 percent stake. If Alibaba goes public in the future, it would either buy one-quarter of Yahoo’s remaining shares in the company at the initial public offering price or allow Yahoo to put the shares up for sale in the IPO. Further, after such an IPO, Yahoo would have the right to sell the rest of its stake.

Alibaba operates the Yahoo China portal through a license that will be extended up to four years through the deal. In addition, as a result of the agreement, Yahoo is now free to explore other investments in China.

Yahoo is also rather busy at home. Its board increased its own share buyback plan by $5 billion in conjunction with the Alibaba deal.

The dust seems to be settling in Yahoo’s boardroom after the recent departure of Scott Thompson and the end of an intense proxy fight led by Daniel Loeb, CEO of the investment firm Third Point. The tipping point in that battle came when certain embellishments on Thompson’s résumé came to light and abruptly ended his short tenure as Yahoo’s CEO this month. Ross Levinsohn, executive vice president and head of global media, took over as interim CEO. Loeb (and two of his confederates) joined Yahoo’s board of directors. Other casualties in the boardroom included non-executive chairman Roy Bostock and four others who stepped down as directors. Fred Amoroso now chairs the company.

Between the Alibaba deal and Thompson’s ouster, Yahoo’s shares have remained lukewarm. They are trading at around $15.31 today. That is better than the 52-week low of $11.09 but still off its $16.99 high. Investors had been looking for a more profitable deal with Alibaba that had more tax advantages.

The real question will be about the leadership. In recent years, Yahoo CEOs have vanished as fast as Spinal Tap drummers.

In late 2008, Yahoo co-founder Jerry Yang announced he would step down as CEO after the company shunned a takeover bid from Microsoft Corp. (Nasdaq: MSFT). Carol Bartz took over in 2009 as the CEO but was shown the door last September.

Yahoo hired Thompson as CEO in January. He made some structural changes, including laying off 2,000 employees in April. But he got his own set of walking papers this month, after Loeb cried foul about Thompson’s supposed dual degree in computer science and accounting. Yahoo went into investigation mode, but the damage had been done.

Now that Loeb and his compatriots are on the board, they will have to show that all the fuss was worth it.