Analysis: Yahoo’s fate riding on new CEO

Analysts say the fate of struggling internet company Yahoo Inc. likely rests on its choice of a new chief executive to replace co-founder Jerry Yang, who announced Nov. 17 that he would step down as CEO when a successor is named. But it’s not just the company’s investors who have a stake in the decision: So, too, do the millions of educators and other internet users around the world for whom web searching and related applications have assumed increasing importance.

What happens to Yahoo could determine, for instance, whether web users have a viable, powerful alternative to Google Inc. in the internet search sphere. Already, Google has garnered its share of critics who fear the search-giant’s power to control which web sites turn up first in a series of search results.

Yahoo’s fate also will decide the future of Yahoo Teachers, a peer-networking web site that aims to help instructors create, share, and modify standards-based curriculum objects. The site was announced last year but has yet to formally launch.

With Yang quitting as Yahoo’s chief executive, the company’s board of directors will confront pivotal questions as it looks for a new leader, analysts say.

Should Yahoo swallow its pride and try to strike a buyout deal with Microsoft Corp. at a price far below Microsoft’s $47.5 billion offer from six months ago? Or should Yahoo still pursue a long-awaited turnaround that’s becoming more difficult to achieve as the economy tanks?

If Yahoo plays it safe and hires someone from within or someone friendly with Microsoft, it could signal that the board merely wants an interim captain who can steer the ship until Microsoft, or possibly another buyer, comes to the rescue.

But should Yahoo recruit a CEO with a prestigious resume or pluck an up-and-coming technology star, it will be seen as a sign that the company is digging in to remain independent for the long haul.

“It’s time for Yahoo to decide if [it is] going to keep entertaining offers or really start to focus on a business strategy,” said Mike Leo, a veteran online ad executive who now runs Operative Inc. “Yahoo still has some great assets. They have just been mismanaged.”

Many analysts and investors have interpreted Yang’s departure as precursor to Microsoft’s acquisition of Yahoo in its entirety or at least its search engine.

Yahoo shares closed Nov. 20 at $8.95. That’s a fraction of the $33 per share that Microsoft offered in early May before Yang’s request for more money prompted the Redmond, Wash.-based software maker to withdraw its bid.

The negotiating breakdown infuriated shareholders, and their fury intensified as Yahoo’s stock plunged to its lowest levels since early 2003.

Yang clung to the hope that he could still engineer a comeback, but his plans went awry yet again this month when Google backed out of a proposed ad partnership to avoid an antitrust battle with the federal government.

The loss of Google’s help, which was supposed to boost Yahoo’s sagging profits, evidently prompted Yang and Yahoo’s board to conclude they needed to announce a change in command even before a successor had been found. Yang, 40, will remain CEO until his replacement is hired and then revert to his former advisory role of “Chief Yahoo.”

Yahoo so far has given few clues on the leadership skills it’s seeking, saying only that it wants a CEO “who can take the company to the next level.” The company has hired headhunting firm Heidrick & Struggles to recruit its next CEO.

Although Yahoo’s profits and stock price have been crumbling for nearly three years, analysts say the company’s huge audience of about 500 million internet users and leadership positions in eMail and news could still attract a big-name executive. “Yahoo can still be salvaged,” said Forrester Research analyst David Card.

The names of possible successors include obvious ones like Yahoo’s current president and Yang confidant, Susan Decker, as well as its former chief operating officer, Dan Rosensweig, who left last year after a management shake-up diminished his authority.

Other candidates offer more intrigue, like former eBay Inc. CEO Meg Whitman or media mogul Rupert Murdoch’s top lieutenant at News Corp., Peter Chernin, who just so happens to be getting ready to negotiate another contract.

Whitman appears to be a long shot, because she has indicated she’s more interested in pursuing a political career than returning to the executive suite.

Jonathan Miller, the former CEO of AOL, has been mentioned as another possibility. But when he left AOL in 2006, his severance agreement included a non-compete clause that prevents him from working from rivals like Yahoo until March 2009. Time Warner Inc., AOL’s corporate parent, enforced the provision to block Miller from joining Yahoo’s board last summer.

Gartner Inc. analyst Allen Weiner believes Yahoo should recruit a turnaround specialist or a “young Turk” in the mold of Jason Kilar, who was lured from Inc. last year to run the online video site If Yahoo takes that kind of a step, Weiner said the deep pools of talent at Silicon Valley neighbors Google and Apple Inc. might yield a savvy new leader.

Other names being bandied about include the former head of Microsoft’s online operation, Kevin Johnson, who helped persuade the software maker to bid for Yahoo. Johnson left Microsoft during the summer to become CEO of computer gear maker Juniper Networks Inc., which is located a half-mile from Yahoo’s headquarters in Sunnyvale, Calif.

Whoever Yahoo selects needs to have charisma and vision if the company is to have any hope of bouncing back, said Todd Dagres, founder of the venture capital firm Spark Capital. “Yahoo is like a wounded animal right now. They need an Obama-like leader,” he said.

Microsoft might make a move on Yahoo before the board even has a chance to hire a new CEO, Jefferies & Co. analyst Youssef Squali suggests. He estimates Microsoft could buy Yahoo in its entirety for $20.50 to $22 per share, or perhaps just snap up Yahoo’s search operations for $8 per share.

Microsoft declined to comment on its interest in Yahoo.

Yahoo’s most outspoken director, Carl Icahn, has been lobbying for a search deal with Microsoft since he became one of the company’s largest shareholders in May.

Icahn waged a campaign to fire Yang during the summer before reaching a truce that gave him and two allies seats on Yahoo’s board. Those allies, former Viacom Inc. CEO Frank Biondi and former Nextel CEO John Chapple, also could vie for Yang’s job.

Even if Icahn finally gets his wish, a Microsoft deal might not be enough to make him whole. He acquired his 5 percent stake in Yahoo for around $25 a share.

Sanford Bernstein & Co. analyst Jeffrey Lindsay doubts Microsoft will renew its pursuit of Yahoo until early next year. He reasons Microsoft has little to lose by waiting, because Yahoo’s stock is unlikely to rise much higher, and the extra time will give the software maker more time to assess how its own efforts to improve its internet operations are panning out.

Waiting also would help Microsoft get a better understanding of the antitrust hurdles a Yahoo bid might face under a new presidential administration.





Forrester Research

Note to readers:

Don’t forget to visit the Desktop Management Made Easy resource center. As school systems become increasingly reliant on technology, district networks are growing exponentially. Supporting the various machines connected to these networks can be a daunting task that builds travel costs and overdraws resources. Utilizing a sound desktop-management strategy can give you complete control of your computers, saving valuable time and money. Go to: Desktop Management Made Easy