Says shareholders must gain in a sale

Activist investor Daniel Loeb, whose Third Point LLC owns about 5% of Yahoo, has put the struggling Netco’s board and management on notice that shareholders expect to reap rewards from an eventual sale, and he has asked co-founder Jerry Yang to leave the board.

Loeb, in a biting letter to directors made public Friday, railed at reports that the company could consider skirting an outright sale by having one or more private equity firms work with Yang to invest a chunk of money in Yahoo, leaving the structure and management unchanged.

“The only purpose would be to put substantial equity stakes into friendly hands to entrench management and transfer effective control without payment of a premium or even, it appears, a shareholder vote,” Loeb wrote. “We will not tolerate any transaction which appropriates for insiders opportunities that duly belong to current Yahoo shareholders.” He threatened a proxy contest if the company pursues a deal that doesn’t give shareholders a fair shake.

“We can assure all Yahoo shareholders that whatever the outcome of the strategic review process may be, it will serve the best interests of all the company’s shareholders,” Yahoo countered in a statement. “News reports based on rumor and speculation are just that. The board’s comprehensive strategic review process is still under way, with a wide range of options under active consideration.”

Yahoo hired investment bankers over the summer and has said nothing more publicly than that it’s exploring all strategic options. The fate of the giant company with stellar worldwide brands but facing brutal competition has become a matter of almost daily speculation — with volatility exacerbated by the fact that Yahoo hasn’t named a new CEO to replace Carol Bartz, who was ousted earlier this year.

Jack Ma’s Alibaba Group of China, major private equity firms Texas Pacific Group, Providence Equity, Silver Lake, KKR and Blackstone, along with Microsoft and Google are said to be eyeing a deal.

“We do not blame our friends at the private equity firms rumored to be involved for trying to get the best deal possible for their investors,” Loeb wrote. “However, we at Third Point are also in the value-maximizing business…. We would welcome the prospect of any of these firms’ presence on a reconstituted Yahoo board of directors and work on a long-term strategy for the company should it be necessary for us to pursue a proxy contest next year.”

Loeb, who is famous for making public harsh letters to boards and executives he wants to pressure, may have a long-standing grudge in this case. He claims in the letter that Yahoo’s failure to clinch a sale to Microsoft in 1998 was due to Yang’s “ineptitude.”

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