Yahoo! Inc. (YHOO): Was Dan Loeb Wrong Dumping The Company?

Billionaire Dan Loeb, the manager of Third Point, has closed its stake in Yahoo! Inc. (NASDAQ:YHOO) during the first quarter of the year, and while Third Point has not disclosed it’s equity portfolio for the second quarter, it’s safe to assume that the sale of the last 8.0 million shares marked the close of Third Point’s relationship with Yahoo!. However, Mr. Loeb dumping its stake in Yahoo! comes as a surprise taking into account that last year he was serving on the company’s board of directors. So was Mr. Loeb right renouncing Yahoo!?

what is a hedge fund

Let’s go back a bit. At the end of July, 2013, Third Point entered into an agreement with Yahoo! Inc. (NASDAQ:YHOO), under the terms of which, the shareholder agreed to sell 40.0 million shares back to the company at a price of $29.11. Since then, the stock of Yahoo, gained around 30%. However, since the beginning of the year, the stock of the company has been declining, so at that moment, Mr. Loeb probably found a good exit point to dump the rest of his remaining shares.

As old filings with the SEC show, Mr. Loeb initiated a stake in September 2011, acquiring 65.0 million shares (5.15% of the stock). He paid around $13.00 per share at the time. So, one thing that is clear, is that even though Third Point sold out its stake in the company, they certainly made a profit, and quite a big one. At the same time, the new investor, which became the third largest outside of the company, sent a letter to the company’s board, outlining some of the issues that the company faces and proposed a change in leadership. Mr. Loeb insisted on this in several other following letters. Well, as we know, in July, 2012, Yahoo! Inc. (NASDAQ:YHOO) appointed Marissa Mayer as its new CEO, under the pressure from Loeb, who kept complaining about the previous CEO’s, Scott Thompson.

Soon after initiating a position in the company, Third Point upped its exposure to 70.5 million shares, raising his stake to 5.66%. In addition, in May, 2012, Mr. Loeb and other two nominees from Third Point were appointed to the company’s board of directors. Soon after that, Mr. Loeb started cutting from its holding in Yahoo!, the biggest reduction being, as it was mentioned above, the 40.0 million shares sold in July, 2012.

So, what went wrong? What caused Mr. Loeb to change his bullish view on the company? As CNBC mentioned in a report from a year ago, Dan Loeb insisted that the new CEO Mayer should lay off 20-30% of the company’s employees. And even though Mayer first agreed to that, later she changed her mind. Nevertheless, since Marissa Mayer was appointed as CEO, the stock of Yahoo! Inc. (NASDAQ:YHOO) managed to gain over 70%, so Mr. Loeb managed to gain some significant profits from the sale of shares.

So, Mr. Loeb’s getting out of Yahoo! Inc. (NASDAQ:YHOO) raised many questions, in particular regarding the performance of the CEO of the company, even though she did a great job giving the company the opportunity to grow. Under her leadership, Yahoo! made several important acquisitions, including Tumblr and significantly changed its leadership. The extraordinary performance of Marissa Mayer was also confirmed by the growth trend of the stock.

Even though, so far this year, the company seems to continue its expansionary trend with more acquisitions (such as Flurry), its stock has been down by 11%, Year-to-Date. Yahoo! also managed to beat the estimates in terms of profit from the past several quarters. In addition, most experts consider that the company will manage to perform even better, taking into account that it owns a huge chunk of Alibaba, which is expected to go public in September. Even though, it is not clear what the company will do with $26 billion it reportedly will get from Alibaba’s IPO, taking into account the past experiences, we can be certain, that Mayer will find a good way where to put this money, be it returning some capital back to shareholders, or continuing its acquisition spree.

The bottom line is that Mr. Loeb dumping Yahoo! Inc. (NASDAQ:YHOO) was a smart idea in term of profits, however, keeping his holding had a great chance to bring Third Point even more money in the long-term. However, Third Point held shares of Yahoo! back in 2009 as well, although they had a minor position of just 1.0 million shares. So, who knows, maybe Mr. Loeb will re-gain his confidence in the company and will return.

Disclosure: none

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!