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Wednesday, January 18, 2012

Yahoo Loses Jerry Yang

First appeared in the Wall Street Journal
Jerry Yang rode Yahoo Inc.'s swift rise and subsequent decline over 17 years. Now the co-founder of the onetime dominant Internet company has decided to stop hanging on.

Mr. Yang, 43 years old, said Tuesday he was resigning from Yahoo's board, severing ties to the company he co-founded with David Filo in 1995 while both were Stanford University graduate students. Mr. Yang also said he would leave the boards of Yahoo Japan Corp. and Alibaba Group Holding Ltd., in which Yahoo owns significant stakes.

Mr. Yang has been under pressure for weeks, grappling with criticism over his multiple roles at the Sunnyvale, Calif., company—including co-founder, director, former chief executive and large shareholder. Some investors questioned whether Mr. Yang had conflicts of interest as Yahoo in recent months explored its strategic options, including whether to sell all or part of the company.

Mr. Yang is leaving after Yahoo this month hired a new chief executive, Scott Thompson, the former president of eBay Inc.'s PayPal unit. He fills a void created four months earlier when the board fired Carol Bartz. Yahoo is also closing in on a deal to shed its Yahoo Japan and Alibaba stakes without creating a hefty tax bill.

Activist investor Dan Loeb's Third Point LLC in recent months has threatened a proxy fight against Yahoo and called for the resignation of Mr. Yang and several other directors. In a reflection of investor sentiment toward Mr. Yang, Yahoo's stock gained 3% to $15.90 in after-hours trading after the co-founder announced his departure from the company's board.

Mr. Yang himself made the decision to exit Yahoo's board, said two people familiar with the situation. Mr. Yang didn't immediately inform all of his fellow directors that he would step down, these people added.

In making his decision, Mr. Yang also didn't discuss potential external pressures facing the board, said one of the people. "Mr. Yang just decided that now was the time," this person said. "Anything else is speculation."

But another person familiar with the situation said Mr. Yang may have wanted to avoid being a target if a proxy fight were to occur. "He's rich. He doesn't need all this [fuss],'' this person said. "He has a great reputation and he doesn't need it sullied.''

Mr. Yang's departure comes several weeks before shareholders can nominate rival directors to Yahoo's board, beginning Feb. 24, though the company could postpone the schedule. All nine Yahoo directors are up for re-election this year. Yahoo hasn't yet announced the date for this year's annual shareholder meeting.

Earlier this month, The Wall Street Journal reported the company was searching for several new board candidates to replace possible outgoing directors, including Chairman Roy Bostock, according to people familiar with the matter.

In a statement, Mr. Yang said "the time has come for me to pursue other interests outside of Yahoo." He didn't respond to requests for further comment.

A spokeswoman for Yahoo said she had no information about whether Mr. Yang would be replaced and who would take his posts on the boards of Alibaba and Yahoo Japan.

Mr. Yang's exit is the latest chapter for Yahoo and underlines the widening gap between old Internet companies and newer ones. Yahoo was part of an earlier crop of Web companies from the 1990s that helped spark the dot-com boom and came of age as users world-wide began going online.

But after riding that wave, new companies such as Google Inc. and Facebook Inc.—often with younger leaders like 27-year-old Mark Zuckerberg at Facebook—came to prominence with Web technologies such as search and social networking, leaving older firms like Yahoo struggling to catch up.

The resignation of Mr. Yang—who as of November still owned a 3.8% stake in Yahoo, compared with a 5.9% stake held by co-founder Mr. Filo—is a far cry from the glory days of Yahoo. The company began as a hobby for Messrs. Filo and Yang, who created "David's and Jerry's Guide to the World Wide Web," a list of their favorite websites.

In 1995, the duo dropped out of Stanford, took a $2 million investment and incorporated Yahoo. The founders chose the name Yahoo largely for its dictionary definition: "rude, unsophisticated, uncouth," according to an official company history.

When consumers started surfing the Web in the mid-1990s, Yahoo became their trusted guide, a kind of Yellow Pages for the new age. Yahoo went public in 1996 in an IPO that instantly made Messrs. Filo and Yang multi-millionaires. The company adopted an anti-corporate image, with executives who wore jeans and put their feet on their desks.

Mr. Yang, the more visible of the two co-founders, quickly became a poster child of the dot-com boom. At its peak in 1999, Yahoo was worth more than $120 billion—bigger than companies such as Cisco Systems Inc. and Hewlett-Packard Co. today.

But even then, the seeds of Yahoo's decline were being planted. The company failed to realize a crop of "algorithmic" Web-search engines such as Google were a potential threat to its business. More recently, Yahoo grappled with the rise of Facebook while failing to establish a big footprint in mobile devices and new methods of selling online ads.

"The near-term Wall Street reaction is that he [Mr. Yang] wasn't doing a good job, but the longer-term perspective is that he will go down as one of the top 10 Internet entrepreneurs," said Mark Mahaney, an analyst at Citigroup Inc. who has been covering the Internet industry since 1998.

During the dot-com bust last decade, Mr. Yang used his star power to help Yahoo draw in badly needed advertisers by meeting with them personally. "For big clients, Jerry was the man," said Greg Coleman, a former top Yahoo executive. "He was the iconic rock star…and he knew how to work that magic."

In the mid-2000s, Mr. Yang fostered a friendship with Jack Ma, CEO of Alibaba Group. In 2005, Yahoo opted to hand its Chinese operations over to Alibaba, while buying a 40% stake in the Chinese firm for $1 billion. That stake was recently estimated at $14 billion, making it one of Yahoo's most valuable assets.

On Tuesday, Mr. Ma said his relationship with Mr. Yang "has withstood some ups and downs over the past few years, and I have great respect for what he has built and I wish him well."

Mr. Yang was Yahoo CEO between mid-2007 and early 2009, during which time he grappled with an offer from Microsoft Corp. in 2008 to buy Yahoo for more than $45 billion. Mr. Yang and fellow directors turned down the offer, igniting a barrage of criticism.

In an on-stage interview at a conference in San Francisco that year, Mr. Yang deflected suggestions he had let his feelings for Yahoo cloud his decision making. "I know I will be labeled with that forever," he said.

After Ms. Bartz became Yahoo CEO in 2009, Mr. Yang receded from the spotlight. Following her firing last September, Yahoo began entertaining potential investments by private-equity firms to take a controlling or minority stake in the company.

Some Yahoo investors expressed concerns because one of the proposals discussed by Yahoo's bankers involved Mr. Yang aligning himself with a private-equity firm or other buyers and becoming part of a new Yahoo ownership group, people familiar with the matter have said. The activist hedge fund Third Point said Mr. Yang must "declare whether he is a buyer or a seller—he cannot be both."

Yahoo denied there was any conflict and people close to Yahoo said Mr. Yang was acting with the board's blessing and that he had retained his own lawyer to advise him on potential conflicts. Another person close to Yahoo said company directors hadn't expressed any concern about Mr. Yang's motivations.

Within Yahoo, Mr. Yang stepped up his presence after the firing of Ms. Bartz, people familiar with the matter have said. He has attended high-level company meetings and been involved in engineering and corporate development strategy, including Yahoo's $270 million acquisition of ad-technology firm Interclick Inc., announced in November, these people said.