Yahoo Directory closing while stockholders demand repayment

Yahoo Directory closing while stockholders demand repayment

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In 1994, Yahoo burst into the internet by indexing the world wide web. Now, the company’s closing the directory and fighting off aggressive stockholders demanding repayment.

Yahoo will be phasing out the directory part of the company on December 31.

After the quiet announcement on Tumblr, a Yahoo product, tech blogs picked up the story. After all, “Yahoo was started nearly 20 years ago as a directory of websites that helped users explore the Internet,” so the phase out is a shock to many people. The shock isn’t the fact the directory is ending, or even still around, but closing the service seems to wall off the Internet’s past.

Gizmodo remembers when Standford Graduate students Jerry Yang and David Filo invented “Yet Another Hierarchical Officious Oracle,” a curated list managed to index and categorize the internet into nice little slots. An important concept in the lawless days of searching the net. Almost like the Sandra Bullock movie except without the dangerous hijinks at every corner.

Imagine it is 1994: the internet’s a tangled web of unconnected topics and Google‘s not even a blip yet. MSN, Yahoo, and AOL dominate and gobble up other tech ideas in a deep competition; the age of Prodigy, Babelfish, IRC chat programs, and dial up’s still the big new thing. So when Yahoo says “business has evolved,” it’s not a lie–how far and how well are entirely different topics. In fact, it’s probably one of the most honest things the company’s declared in a while.

Gizomodo‘s Chris Mills notes the austere difference in website usage and function. “The idea of thumbing through hundreds of thousands of names to find something (or, even, going to the second page of Google) seems laughably insane.” And it is. Google’s dominating the competition, Yahoo’s struggling to keep up, MSN’s somewhere on the scale of irrelevancy, and AOL’s bringing up the rear…a couple miles back.

Just look at the 15 or so Yahoo products linked on the Tumblr post’s sidebar.

Many of the products have been incorporated and destroyed strong web platforms along the way—RIP Geocities and Delicious—so wary internet users are looking at the shuttering of another rebranding gone wrong. The insidious way the company releases business information without sending carefully crafted news to a few media sources means Yahoo /4/easily slide by without anyone noticing.

Investors are taking note, though.

According to Re/code, Starboard Value’s increased stake in Yahoo stocks led to mini showdown with Yahoo’s CEO Marissa Mayer over investment and repayments. Starboard wants to combine Yahoo and AOL into a jointly owned entity since the coup d’état at AOL two years ago failed. Mayer’s made some questionable decisions in her tenure but has actively looked at upping company portfolio value. Selling a bulk of Alibaba stocks offers the chance to repay investors.

Starboard’s insistence that “unlocking the substantial value from Yahoo’s non-core minority equity stakes in Alibaba Group Holding Limited (“Alibaba”) and Yahoo Japan in a structure that delivers value directly to Yahoo shareholders in a tax-efficient manner” would be a benefit only works if another cash infusion exists. Does the investment firm wish to up company stakes in an effort to control future directions?

It’s an easy assumption to make given the emphasis on tax benefits. “Yahoo is deeply undervalued relative to the sum of its parts” and the “value gap can be closed with minimal tax leakage” if following the plan laid out. But all one has to look at is the “without delay based on actions within the control of management and the Board” to see where “we have explored a number of alternative structures” would place Starboard in charge.

Even though the stock has been relatively well-performing, “the appreciation in Alibaba’s valuation, which Yahoo purchased in 2005, has masked the poor performance of Yahoo’s core business.” In short, Starboard are arguing against Mayer’s credibility. “New management was appointed in Q2 2012, revenue in Yahoo’s core Search and Display businesses has been stagnant.”

The attack is aimed at taking control and direction of the company above all other stockholders while paying back investors instead of growing the company. By pressuring Mayer “to hand most of the cash from its huge stake in Alibaba Group and other Asian assets,” majority of Yahoo’s investors believe the small buy ups and failures will stop the spiraling company; and during which time the Alibaba IPO cash could be available to pay back all investor cash.

However, trying to untangle the Asian investments would take at least a year in Japan and SoftBank‘s investment in Alibaba offers a kind of landing spot if brokered correctly.

Mayer’s smart if she ignores Starboard’s outcry, pacifying without offering anything specific. In other words, walk softly and do business as she sees fit. Which seems to include buying tech products, shuttering the individual product side while incorporating the tech into the Yahoo brand, and announcing changes quietly after watching predecessor’s failures.

She offered that “building value for all shareholders through the continued execution of our strategy, investing in products that will drive sustainable growth” remains vital. And to grow, the company needs to use more media sources that offer “search, communications, digital magazines and video” while shuttering the education section entirely.

Marissa Mayer’s not out of the game yet.

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