Activist buys up stake in Yahoo, slams board

LOS ANGELES -- An activist investment fund disclosed Thursday that it has bought a 5.2% stake in troubled Web portal Yahoo Inc. and called for sweeping changes to the board.

A public letter from Daniel Loeb, chief executive of investment adviser Third Point, comes after Yahoo's board fired CEO Carol Bartz on Tuesday after 2 1/2 years on the job, a move she bitterly criticized in an interview published Thursday.

Loeb said the board made a "serious misjudgment" in hiring Bartz, and he criticized it for taking so long to fire her given her "abysmal performance." He slammed Bartz personally for alienating the company's Asian partners —Alibaba Group, Softbank and Yahoo Japan — as well as Yahoo's shareholders, analysts, bloggers, customers and employees.

"While the decision to hire her alone is grounds for questioning the board's competence, its willingness to turn a blind eye to these serious problems … is even more troubling," Loeb said.

Loeb also said it is now apparent that the board made a "gross error" in turning down Microsoft's takeover bid in 2008 for $31 a share. Microsoft raised its bid to $33 per share, or $47.5 billion, before withdrawing the offer in May 2008. Loeb believes Yahoo's intrinsic value is now around $20 per share.

"This mistake is all the more frustrating given Yahoo's current depressed stock price," he said.

Yahoo's stock jumped 49 cents, or 3.6%, to $14.10 in afternoon trading Thursday after the letter was released. Since Bartz's firing, shares are up 8%.

Loeb calls for the resignation of Chairman Roy Bostock, who championed Bartz and "led the charge against the Microsoft deal," as well as directors Arthur Kern, Vyomesh Joshi and Susan James.

Third Point's investment in Yahoo — in which it amassed 65 million shares and immediately exercisable options since Aug. 8 — makes it Yahoo's third largest outside investor.

In an interview with Fortune magazine published Thursday, Bartz used profanity to describe her firing by Yahoo's board. She said Bostock read from a lawyer's prepared statement when he spoke to her by phone to dismiss her on Tuesday.

Bartz also depicted her as a scapegoat for a Yahoo board trying "to show that they're not the doofuses that they are."

Yahoo hired Bartz in January 2009 to engineer a turnaround, but she was criticized for cutting her way to profits while not increasing revenue as companies like Google and Facebook took off.