Yahoo: 'Ali Baba and the Forty Thieves' in Reverse?

By Peter Bernstein August 10, 2012

As readers of my musings the past year are aware, I have a passion for stories relating to Yahoo! I met Jerry Yang when he was creating the company, and still use it as my home page (partly based on loyalty as well as utility). Plus, in the name of full disclosure, I bought the stock near its high before the bubble burst and rode it down to near single digits before giving up hope in 2004 (which is why I write about the industry and do not give financial advice). And, I have remained fascinated by the company’s lack of performance in the past few years and the musical chairs game it plays with executives and board members. 

With that as prolog, I could not help but be drawn to Kara Swisher’s AllThingsD posting, “Mine! Mine! All Mine! Yahoo Says It Might Just Keep Those Alibaba Billions, Rather Than Giving the $ Back to Shareholders.” Kudos to Ms. Swisher for a nice piece of work. Here is why.

Nestled in Yahoo Inc.’s Form 8-K filing is the following language under a section called “New Chief Executive Officer and Review of Business Strategy,” which describes new CEo Marissa Mayer’s look evaluation of how best to “enhance long term shareholder value:” 

“Ms. Mayer intends to review with the Board of Directors, among other things, the Company’s growth and acquisition strategy, the restructuring plan we began implementing in the second quarter of 2012, and the Company’s cash position and planned capital allocation strategy. This review process may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase under the Share Repurchase and Preference Share Sale Agreement we entered into on May 20, 2012 with Alibaba Group Holding Limited.”

What we are talking about here is billions of dollars. To be more precise, depending on how the deal is structured, it’s probably $3 billion in cash with another $1.5 from another asset. As the piece points out, this leaves more than a bit of wiggle room for Yahoo to back away from previous statements by its CFO and board members that it intended to give the Alibaba proceeds back to shareholders. Call it what personal injury attorneys call it, a damage award for “pain and suffering.”

The news of this little ditty sent the stock on a reasonable slide as might be expected. It has also set off more than a bit of speculation as to what Yahoo might do with the proceeds if it is not willing to salve the wounds of disgruntled investors — the obvious being to make friends and influence people (advertisers?), along with acquire companies that fill in portfolio gaps. 

In the old Arabian story of “Ali Baba and the Forty Thieves,” the faithful slave Morgiana continuously foils the plot of the Forty Thieves to kill her master who has discovered their treasure, eventually earning her freedom as the threat from the bad guys is eliminated. Ali Baba, despite his name in the tale, is more bystander than action hero. This leads to the question as to whether CEO Mayer is Morgiana, or a secretly a member of the Forty Thieves?        

Only time will tell as to whether the treasure of the thieves’ cave can be revealed and mined. However, I do think that throwing shareholders a bone is not a bad thing, and that speculation about acquisitions is more than a bit premature. Let’s first see if Mayer can present a coherent strategy for Yahoo that does not require the magic words “Open Sesame!” to gain access to the treasure, and can make Yahoo a place where people want to work rather than have to work. The monetization of the existing capabilities and large user base remains job number one and it is going to take a great plan and careful execution, not magic words, for not just shareholders but stakeholders to believe there is a path to riches here. 

A reasonable place to start might be getting the company out of the news for reasons other than the introduction of great services — regime changes, shareholder dissatisfaction, blown opportunities, poor performance, brain drains, etc. — would be a good start. The magic words that users, ecosystem partners, investors and advertisers want to here should include accolades for things like “ingenuity,” “game-changer,” “phoenix rising from the ashes,” etc. These are descriptors that can go with flawless execution that does not automatically mean that they are driven by non-organic activities. 

As I wrote when the now departed Scott Thompson took the helm, he deserved a honeymoon period but it was likely to be short. Mayer, because of what has transpired, may not have the luxury of time. After all, how many “reviews” does even the new reconstituted board need to have at least some inkling of what the challenges are and what the options are to right the ship? In fact, it is time to say “Close Sesame,” forget about the riches in the cave for the moment, and get down to business.

One can only hope that like the Arabian tale, this has a happy ending and the thieves don’t prevail. Yahoo! 

Edited by Rich Steeves
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