Why Won't Yahoo! Do the Right Thing?

For some reason, Yahoo! Inc. (NASDAQ: YHOO) believed it had to file a document with the Securities and Exchange Commission explaining that the company’s new CEO Marissa Mayer and the board have reviewed what the portal firm will do with its cash, particularly money from its sale of an interest in China firm Alibaba. Maybe Yahoo!’s lawyers believed that such a big change had to be disclosed.

The most important part of the filed 8-K document was:

This review process may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase under the Share Repurchase and Preference Share Sale Agreement we entered into on May 20, 2012 with Alibaba Group Holding Limited.

Management and the board knew the announcement would depress investors who have watched the company go through multiple CEOs, board members and strategies. There is no question the decision will drive down the Yahoo! share price. Whatever the reason, Yahoo! has sent a message that part of the shareholders’ hope to get some value from the company has been injured, and nothing concrete has been said about the alternative.

Some observers say that the board wants to make it clear that the only way to get Yahoo! back on a growth track in through investment in current businesses or the purchase of new ones. Efforts to better the company’s core operations have failed repeatedly. Acquisitions always involve integration risks, and the tech sector continues to prove over and over the rule that most M&A deals fail.

The share buyback plan was an excellent one. Investors did not have to fret about management competence and the normal business risks that go with changes in strategy. Money put into people’s pockets is better than money risked on future growth, at least in the case of Yahoo!’s perpetually suffering stockholders. The 8-K should never have been issued. The return of money to shareholders was the best idea the board and management have had in years.

Douglas A. McIntyre