Dan Loeb Takes on Yahoo

Illustration by Todd Detwiler (source photos): Kim White / Bloomberg-Getty Images; Phil McCarten / Reuters-Landov

When the clouds descended on the slopes at Davos one Saturday in January, Dan Loeb called it quits and headed for the gym. The poor visibility, the hedge-fund manager told me, wasn’t letting him ski hard enough to get his heart rate up.

Today it’s Loeb who has pulses racing across corporate America. The 50-year-old Third Point founder, who has been rattling the cages of companies for years, has gone mainstream with his acidic brand of investor activism. Rather than picking on obscure small companies, he has gone for a big, well-known one: Yahoo. Having gobbled up nearly 6 percent of the $19 billion Internet group’s stock, Loeb is pressing for a bigger say at the company by lobbying for four seats on its board.

There’s nothing particularly novel with this approach, known on Wall Street as a proxy fight. It’s a path forged by activist investors like billionaire Carl Icahn and Pershing Square’s Bill Ackman. But Loeb’s tilt at Yahoo is unusually acrimonious. Two weeks ago Loeb outed Yahoo chief executive Scott Thompson for claiming in his corporate biography that he had received a bachelor’s degree in computer science when he hadn’t—a goof the company initially called “inadvertent.”

Whatever the semantics, Loeb revealed a glaring deficiency at one of America’s bigger companies. That Thompson didn’t actually get a degree in programming Pascal or SQL is largely irrelevant. The fact that Yahoo’s search committee didn’t conduct even basic due diligence is damning. That it didn’t see Loeb’s assault coming suggests complacency.

All it would have taken was a quick look—even a Yahoo search would’ve worked—at Loeb’s history. The caustic deployment of his keyboard is Loeb’s hallmark. He once accused a management team of “tooling around in a luxurious business jet, possibly sipping Cristal Champagne cocktails at shareholder expense.” He’s even played the inflated executive résumé gambit before, when he revealed that the rather grand-sounding company run by a director of InterCept had just two employees and sales of $40,000. Yahoo’s board shouldn’t have missed the possibility that Loeb could do it again.

It’s not clear how Thompson’s humiliation will boost Yahoo’s value. It may help Loeb get his directors elected, but even then he hasn’t articulated a particularly credible plan for remaking the Internet also-ran. That may be missing the point. With his assault on Yahoo, Loeb has entered the pantheon of bad-ass investors that includes the 76-year-old Icahn. The episode has every company with a public stock or bond scrambling to fact-check the résumés of its top managers. In the future, they’ll fear Dan Loeb.

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