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Friday, August 10, 2012

Yahoo May Reverse Alibaba Cash Plans

Story first reported from

Yahoo Inc. said Thursday it could reverse its May decision to return more than $4 billion to shareholders from selling part of its stake in a Chinese Internet company, a signal that new Chief Executive Marissa Mayer may want to use the cash for other purposes.

Yahoo's statement, contained in a regulatory filing signed by Chief Financial Officer Tim Morse, sent the Sunnyvale, Calif., company's shares down 3.5% in after-hours trading to $16.17.

In May, Mr. Morse helped engineer the sale of part of Yahoo's stake in Chinese Web company Alibaba Group Holding Ltd. He said on a July 17 earnings call with analysts that Yahoo's board was committed to returning the proceeds from the Alibaba sale to shareholders, though the company hadn't determined the form or timing of such an action.

On Thursday, Yahoo said in the filing it may change its prior decisions because Ms. Mayer, who was hired three weeks ago, is reviewing the company's strategy.

Ms. Mayer's "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" from the sale of Yahoo's stake in Alibaba.

Anne Espiritu, a Yahoo spokeswoman, said in a statement that Ms. Mayer is "carrying out a careful review of the company's business" and is looking at "potential strategy changes to Yahoo's current plans" along with fellow Yahoo directors. She declined to elaborate.

Joseph Grundfest, a law professor at Stanford University who is an expert on corporate governance, said that "management can, for entirely legitimate reasons, change its mind as long as it hasn't made a binding commitment" to return the cash to shareholders. Mayer seems to have a different plan in mind for the funds than what was originally intended, as she works to pull Yahoo back to it's earlier successes, while the market is focused largely on Google SEO.

The potential about-face in Yahoo's spending plans falls in line with Ms. Mayer's technology-heavy background, said Ron Josey, an analyst with research firm ThinkEquity, but it still caught some investors by surprise.

He noted a lot of shareholders bought the stock thinking that Yahoo was going to start a multibillion-dollar buyback plan that would help lift the stock's near-term value.

For years, the vast majority of Yahoo's market valuation has been tied to its stakes in Asian Web companies Alibaba and Yahoo Japan. Investors have placed little value on Yahoo's core business, which generates around $5 billion in revenue annually, mainly from selling online advertising.

Yahoo currently has around $2 billion in cash, and Ms. Mayer already has shown signs she is willing to spend substantial sums to turn around the struggling Internet company.

"She didn't come here to wind the company down," Mr. Josey said. "She came here to restore Yahoo to what it used to be."

She has told colleagues she is interested in hiring or acquiring new talent and products through acquisitions, among other things, and possibly investing in Yahoo's advertising technology, according to people briefed on the matter.

"For someone who's thinking about a growth strategy, of course you should maintain as much cash on the balance sheet as possible, maybe for acquisitions," said Mark Mahaney, a stock analyst at Citigroup Inc.

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