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Yahoo results show pressure facing board

USA TODAY USA TODAY 20/04/2016 Mike Snider

Yahoo CEO Marissa Mayer delivers the keynote address at the Yahoo Mobile Developer Conference in San Francisco on Feb. 18, 2016.© Eric Risberg, AP Yahoo CEO Marissa Mayer delivers the keynote address at the Yahoo Mobile Developer Conference in San Francisco on Feb. 18, 2016. Yahoo's adjusted first quarter results edged past Wall Street expectations, but falling sales and a bleaker outlook reflected heavy competitive pressure pushing the board to consider a sale.

After the company released its financials on Tuesday, several bidders for the beleaguered company were identified by the Wall Street Journal and Reuters, citing unnamed sources.

Making separate bids were Verizon, Britain's Daily Mail and private investment firm TPG, with a group of investors submitting another bid, the Journal reported. The group included Bain Capital, Vista Equity Partners and former Yahoo CEO Ross Levinsohn, the newspaper said.

Also making bids, according to Reuters, were private equity firms Apax Partners LLP, Apollo Global Management LLC and Warburg Pincus LLC. 

Yahoo reported non-GAAP first-quarter earnings of 8 cents, beating analysts' expectations of 7 cents per share, according to S&P Global Market Intelligence estimates. Revenue minus the cost of traffic acquisition was $859 million, beating estimates of $846.1 million and within Yahoo's own forecasts.

Yahoo (YHOO) shares were up 1.4% to $36.84 in after-hours trading Tuesday.

Both sales and its bottom line were significantly worse than a year ago. Revenue fell 11% to $1.087 billion. The company swung to a net loss of $99 million from $21.2 million in net income during the same period last year. 

Yahoo's second quarter outlook also was dim. Yahoo expects revenue after subtracting the cost of traffic acquisition — the metric Wall Street likes to track — will range from $810 million to $850 million, below analysts' estimates of $860 million and a decline of 17% from $1.04 billion in the second quarter last year.

“We’re now entering more than a year and a half of deteriorating results from Yahoo and no one seems surprised any more,” said analyst James Brumley. “Better to sell the company now and put the company assets in the hands of somebody who can do something with them.”

Analysts had hoped for an update on Yahoo's ongoing process to possibly sell all or part of the company, which was announced last month. The first round of bids have been submitted. However, CEO Marissa Mayer said "in order to protect the integrity of the process" that she and management would not comment further on timing of the process or various offers received. 

Yahoo's management and board has made "the strategic alternative process a top priority," she said during a conference call with investment analysts, "to achieve the best possible outcome for our shareholders." 

She said execs take part "in daily calls and meetings, often several per day, with the strategic review committee and its advisors." 

Yahoo’s management needs to make the sale "a key priority," said Sotirios Paroutis, a Warwick Business School professor of strategic management. Time is running out, with activist shareholders poised to fight a proxy battle at this summer's annual meeting. "What parts of the business will be sold to whom and at what price," Paroutis said, "will define the legacy of CEO Marissa Mayer as a leader."

Earlier in the day Starboard Value CEO Jeffrey Smith told CNBC Tuesday that the hedge fund and Yahoo shareholder — it's nominated nine candidates for Yahoo's board — continued to talk with the company's management but was not close to a settlement. Starboard must continue its proxy battle "for the benefit of the process and for the potential buyer," he said.

"If we get to the end and they haven't been successful (in) getting the core business sold, we are going to need to pick up the pieces and … we need to be able to make change and that is why you have to go for so many seats," he said. "There have been cases with this management team and this board where they said that they were going to do things over the last several years and then they didn’t follow through."

Follow Mike Snider on Twitter: @MikeSnider


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