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

Biotech Insider Alert - $5 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!