Can Yahoo Avoid Proxy War? Co. Said To Meet Starboard Next Week

Yahoo! Inc. (NASDAQ: YHOO) is said to meet activist hedge fund Starboard Value next week as part of its efforts to avoid a proxy battle, according to a New York Post report.

Starboard CEO Jeff Smith is demanding a sale of the company and gearing up for a proxy battle. In a letter to Yahoo board in January, Smith said the Board must accept that significant changes are desperately needed. This would include changes in management, changes in Board composition and changes in strategy and execution.

What He Said

"If the Board is willing to embrace the need for significant change and pursue a strategy along the lines of what we have proposed above, we are hopeful we can work constructively together and make changes to the Board through a mutually agreeable resolution. This is clearly the preferable route," Smith said.

"If the Board is unwilling to accept the need for significant change, then an election contest may very well be needed so that shareholders can replace a majority of the Board with directors who will represent their best interests and approach the situation with an open mind and a fresh perspective," Smith added.

Smith, who is "highly confident" that there are interested and credible buyers for Yahoo's core business, alleged that Yahoo ignored interest from several parties when it announced its plan to spin-off, rather than sell.

Last month, Yahoo said its Board remains "thoroughly committed to exploring strategic alternatives."

Starboard Value is looking to gain support from Yahoo's shareholders for a board overhaul and has hired Okapi Partners, a proxy-advisory firm.

Proxy Unnecessary?

According to a report from the New York Times, a proxy battle may prove to be unnecessary as Yahoo could offer at least two board seats to the activist fund. However, the publication, citing "insiders," are "skeptical" if Yahoo's olive-branch would be accepted as the activist investor is eyeing a majority control of the board.

"Starboard will probably want at least four seats if it doesn't try to replace the board entirely," one source told The Post while another source added, "Starboard feels like they're coming from a position of strength."

Meanwhile, Yahoo CEO Marissa Mayer was recently visiting Wall Street firms to discuss a potential sale of the company's internet assets. The New York Post quoted another source who said that the executive now "realizes she faces a skeptical shareholder base and selling the company is the right thing to do."

Shares of Yahoo have dropped 23 percent in the last year and were recently trading at $32.47.