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Is the Yahoo Turnaround on Track?

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One of the more interesting investment stories in the Internet space is the turnaround taking place at Yahoo.

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Editor's Note: This content was originally published on Benzinga.com by Scott Rubin

In 2008, Carl Icahn purchased a large stake in the company and proceeded to muscle his way onto Yahoo's board of directors after it inexplicably turned down a $47.5 billion, or $33 per share, acquisition offer from Microsoft (NASDAQ:MSFT).

Originally, Microsoft bid $44.6 billion, or $31 per share, for the company in February 2008. At the time, the offer represented a 62% premium over the stock's closing price. Even after the deal was sweetened by $2 per share, Yahoo co-founder and CEO Jerry Yang wouldn't bite. That mistake ended up costing Yang his job.

He was replaced by former Autodesk (NASDAQ:ADSK) CEO Carol Bartz in 2009. Eventually, Icahn gave up on the company, resigned from his board position, and sold his holdings in the stock. Bartz's tenure at Yahoo was filled with controversy due to her outspoken and aggressive nature and a tendency towards internal secrecy. Under her stewardship, the stock also went nowhere to the chagrin of investors.

In 2010, Bartz was named the "most overpaid" CEO in America by proxy voting firm Glass-Lewis after she reaped $47.2 million in compensation. In September 2011, Bartz was fired and replaced on an interim basis by CFO Tim Morse. She was also forced off Yahoo's board of directors.

By this time, well-known activist hedge fund manager Dan Loeb's Third Point LLC had established a large stake in the company. Currently, Third Point owns 6.17% of Yahoo, making it the company's largest shareholder. Loeb was happy to see Bartz go and had been agitating for change.

In a letter to the company's board of directors, Leob wrote:

It is now widely accepted that the Board made a serious misjudgment in approving the hiring of Carol Bartz as Yahoo's Chief Executive Officer, given her inexperience in the consumer-oriented Internet space. Although we are pleased that the Board has terminated Ms. Bartz's employment, we fail to understand why this decision was so long in coming given her abysmal performance over the last two and a half years. During this period, Ms. Bartz's poor decision-making and communication skills publicly alienated the Company's highly respected Asian partners, as well as its shareholders, sell-side analysts, bloggers, customers and employees.

Eventually, the board hired PayPal (NASDAQ:EBAY) President Scott Thompson to lead a turnaround. This proved to be a disaster. Loeb was displeased with the decision and began looking into Thompson's background. He discovered that the CEO's resume claimed he held a degree in accounting and computer science from Stonehill College.

The school, however, did not begin giving out computer science degrees until four years after Thompson graduated and only had one computer science class in its curriculum while he was there. Subsequently, it was proven that Thompson only held a degree in accounting and that the resume had been embellished.

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No positions in stocks mentioned.

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