What Yang's departure means for Yahoo

Bottom line: It's a clear signal that the Internet pioneer is up for sale.

By InvestorPlace Jan 18, 2012 9:49AM

Jerry Yang's abrupt departure Tuesday from Yahoo (YHOO) is a clear signal that the company he co-founded is on the block. A flashing neon "For Sale" sign would be less subtle, and that's the problem.

Pressure is so intense from shareholders -- including activists such as Daniel Loeb -- that Yahoo has little choice but to quickly sell anything that isn't nailed down.

Those assets include its 40% stake in Yahoo Japan and its 35% interest in Alibaba. Talks with Alibaba, which the The New York Times says are under way, along with separate discussions with Softbank about Yahoo Japan, were reportedly being stymied by Yang.

"At times, Mr. Yang's opinions seemed to diverge from the board's consensus . . . creating a tense -- and occasionally confusing -- backdrop for negotiations," the Times wrote.

The changes, though, can't stop with Yang's departure.

Yahoo will have to be rethought from top to bottom, because like AOL (AOL), Yahoo does not make sense as it currently exists. Today's Internet users don't want a one-stop shop for things like photo sharing, dating and stock quotes. What will become of the pioneering Internet company is anyone's guess.

At least shareholders are optimistic. The Sunnyvale, Calif., company's stock, down nearly 50% over the past five years, jumped more than 2.5% Tuesday after hours on the Yang departure announcement, and it'll probably rise again Wednesday. But for shareholders, there's always a sense of what might have been with Yahoo but was never achieved, largely because of Yang’s ineffective leadership. It had an inauspicious start.

When then-CEO Terry Semel was forced out of Yahoo in 2007, he gave the already struggling company some prophetic advice: "This is a time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its potential," he was quoted as saying.

Nothing of the sort happened. Instead, Yang, who co-founded Yahoo with David Filo in 1995, became the CEO. A year later came the calamitous decision to reject Microsoft's (MSFT) $47.5 billion offer, which Yahoo argued at the time "substantially" undervalued the company. As of Tuesday, its market capitalization was $19.14 billion. (Microsoft owns and publishes Top Stocks, and MSN Money site.)

Whatever skills Yang had in building Yahoo into what was once the most-visited site on the Internet failed him when he ran the company. In 2009, he was replaced by Carol Bartz. Hope sprang anew that Yahoo would return to its glory days. A May 2009 Reuters report  spoke approvingly of a management overhaul that Bartz was making, saying it was "exactly the kind of shake-up needed at Yahoo."

Sadly, that optimism was soon dashed. Bartz was fired in September, and Yahoo went into another tailspin. Earlier this month, Scott Thompson was named Yahoo's latest CEO. New members may soon be joining the board, and old ones are likely to depart, according to the Times.

Yang's decision to immediately sever ties with the company he co-founded 17 years ago marks the end of an era and the beginning of yet more uncertainty. But for Yahoo to have a future, it has no choice but to shed its past.

Jonathan Berr does not own shares of any companies mentioned here.

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Jan 18, 2012 11:33AM
Jerry Yang was a huge part of Yahoo's problems.  He waged war against Microsoft's attempt to buy Yahoo @ $31.00 per share.  YHOO closed yesterday @ $15.34.  Goodbye Jerry.  Don't let the door hit you in the back.
Jan 18, 2012 12:59PM
Jan 18, 2012 4:51PM
I agree completely with TAKIDOBRE.  Not only did this guy get in the way of selling at a profit, but he failed to do anything to keep Yahoo current or relevant.  One-man destroyer of his own company.  Nice job....
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