--Third Point's interest in Yahoo began in the first quarter of 2008
--By early this year, hedge fund was biggest single institutional shareholder at Yahoo
--Questions surround Yahoo's potential and value
By Benjamin Pimentel
A DOW JONES COLUMN
In its proxy war against Yahoo Inc. (YHOO), Third Point LLC argued that the company is "about so much more than its valuable asset portfolio," while stressing the need for a "comprehensive strategic plan" for the struggling Web portal.
Yet the hedge-fund firm's interest in Yahoo grew out of tactical investment opportunities as the Internet company's fortunes shifted wildly over the past four years, sending its stock on a roller-coaster ride.
Third Point now finds itself poised to play a more powerful role at Yahoo, having helped oust Chief Executive Scott Thompson after just months on the job, as well as several company directors, including Chairman Roy Bostock.
Third Point chief Daniel Loeb and two other directors aligned with the investment group are now set to join the Yahoo board. Named to replace Thompson was executive Ross Levinsohn, Yahoo's sixth top executive in five years.
But many questions remain about Loeb's vision for the once-powerful Web pioneer, which long has struggled with a slowing core business.
"They caught the bus--now what are they going to do with it?" said Vivek Wadhwa, a fellow at the Stanford University's Rock Center for Corporate Governance, referring to Third Point.
Loeb and Third Point declined to comment for this article. But an examination of the hedge fund's past transactions with Yahoo's stock shows an investor that seized an opportunity at a particularly weak point, and then built that into de facto control of the company's fate.
It's a big bet, as Yahoo now makes up the biggest chunk of Third Point's investment portfolio.
The position began in the first quarter of 2008, when Microsoft Corp. (MSFT) unveiled a bid to buy Yahoo for $31 a share, representing a 62% premium. That quarter, Third Point acquired 1 million Yahoo shares, when the stock was at $28.93, according to data from FactSet Research.
Microsoft's unsolicited bid was widely expected to lead to a merger between the software giant and the Silicon Valley Internet icon. But after months of talks, the negotiations collapsed in early June. Yahoo's stock plunged to about $12 by the end of 2008.
The appointment of Carol Bartz as chief executive in January 2009 appeared to reignite Third Point's interest in the company. The hedge fund bought another 2 million shares in the June quarter of that year when the stock was at $15.66 a share, according to FactSet Research data.
But then the second half of 2009 saw Yahoo finally signing an online-advertising deal with Microsoft--an agreement many analysts contended wasn't good for Yahoo. Third Point sold 2 million Yahoo shares in the last quarter of that year, when the stock was at $16.78.
By the end of 2010, there was much speculation once again that Yahoo could be acquired by a private-equity firm or possibly even enter into a merger with AOL Inc. (AOL). Third Point bought 56,500 shares in the last quarter of 2010 when the stock was at $16.63.
But the acquisition rumors went nowhere. By late last year, Yahoo's shares were tanking, hitting a three-year low of $11.09 a share Aug. 8. Third Point began expanding its position in the company once again.
"Part of it was the macro environment; part of it was investors throwing up their hands with the leadership under Bartz, Yang and Bostock," said Yahoo investor Eric Jackson, who's challenged Yahoo's board in the past and supported Third Point's campaign this time around.
Jackson said that Third Point "pounced" at the right time. The company added about 47 million shares in the third quarter of last year, when the stock was at $13.17, according to FactSet Research.
"They almost perfectly timed the bottom in Yahoo's stock," he added.
Jackson also said he believes Third Point's investments triggered a reaction from the Yahoo board, which may have anticipated Loeb's more-aggressive push for change.
On Sept. 6, the board abruptly fired Bartz. Following her ouster, Third Point bought another 8 million shares in the December quarter when Yahoo's stock was at $16.13.
The hedge fund "judged that the chances of having a successful investment increased when Bartz was gone," according to Jackson.
By early 2012, Third Point was the biggest single institutional shareholder at Yahoo, with a roughly 6% stake in the company. Loeb became more vocal in his criticisms of Yahoo's directors and management, and openly called for a board shake-up.
The Web portal's subsequent moves didn't appear to appease Third Point. On Jan. 4, Yahoo named former PayPal president Thompson as chief executive. Two weeks later, co-founder and former CEO Jerry Yang said he was resigning and stepping down from the board--severing all ties to Yahoo.
Nevertheless, Loeb and Third Point unleashed the proxy war on the company.
In February, Third Point unveiled its campaign against the Yahoo board. In letters to Thompson, Loeb blasted the board's "stonewalling" and "apparent insouciance," painting the directors as operating in "an illogical Alice-in-Wonderland world."
As of early this month, Yahoo's directors were still apparently so confident about fending off Third Point's offensive that they sent a letter to shareholders belittling Loeb, arguing that the hedge-fund investor "does not have the relevant skill set and experience" to become a director.
Then "resume-gate" hit.
Third Point exposed that Thompson misstated his academic credentials, which the board failed to notice when he was recruited and eventually hired for the top job. The company at first seemed to shrug off the discrepancy, called the matter an "inadvertent error."
Yet the damage had been done, and Thompson was out days later as reports said he also may have had a health-related reason to step down. Levinsohn was tapped from within to be interim chief.
Potential Vs. Value
Loeb, for his part, has said in a statement that he and his fellow directors from Third Point hope to work "with new leadership to unlock Yahoo's significant potential and value."
But there's much debate on that "potential and value." Many analysts see Yahoo's value mainly in its prized Asian assets, including a roughly 40% stake in Alibaba Group in China. Some don't see much hope in the company's core business.
"I don't think Yahoo can be turned around," said Wadhwa of Stanford. "The parts have value; the whole doesn't have any value. There's no sense keeping it together anymore."
In its proxy campaign, Third Point had stressed that it sees value in "core Yahoo," stressing goals such as expanding audience and traffic and enhancing the portal's "engagement in video."
Jackson commented that while the Asian assets will be a major focus, he also saw a future for Yahoo as a longer-term player.
"There's way too much negativity over the company," he said. Yahoo, he added, could bounce back, citing the way AOL has been able to recover as an Internet player.
"This is like AOL from last August," Jackson elaborated. "If you're able to show the market that you're stabilizing the revenue, that's going to be a huge wake-up call to the market and get at least an appropriate AOL-like valuation for this larger core business."
(Benjamin Pimentel writes for MarketWatch. He can be reached at 415-439-6400 or by email at AskNewswires@dowjones.com.)