- The Washington Times - Wednesday, November 19, 2008

SAN FRANCISCO

Yahoo Inc. shares shot up nearly 9 percent Tuesday as investors took the resignation of CEO Jerry Yang to mean Microsoft Corp. is more likely to make another bid for the ailing Internet company.

Mr. Yang’s emotional attachment to the company that he co-founded in 1995 is one of the reasons that he balked at a $47.5 billion takeover offer from Microsoft six months ago. The same devotion finally led Mr. Yang to conclude that he should step aside as chief executive officer, as the company seeks to bolster its depressed stock price and sagging earnings in an economic downturn that might prove even more wrenching than the dot-com bust of eight years ago.

Mr. Yang’s surrendering of the CEO reins, announced Monday night, won’t occur until Yahoo finds a suitable replacement. The Silicon Valley company said it is interviewing candidates inside and outside Yahoo in a search led by its chairman, Roy Bostock, and the executive recruitment firm Heidrick & Struggles.

It didn’t take long for analysts to conclude that Mr. Yang’s departure will clear the way for a major overhaul that could culminate in Yahoo’s sale to Microsoft - something Mr. Yang refused to do in May, to the great irritation of shareholders.

“We still believe Microsoft will eventually own Yahoo,” UBS analyst Benjamin Schachter wrote in a research note late Monday. “Jerry moving out of the CEO role may accelerate this.”

Although Mr. Yang, 40, had publicly expressed his desire to remain at the helm, Yahoo’s board faced intensifying pressure to cast him aside as the company’s shares plunged to their lowest levels since early 2003.

Yahoo shares jumped 8.7 percent to $11.55 but still far below Microsoft’s last bid of $33 per share in early May.

Microsoft CEO Steve Ballmer huffily withdrew the offer after Mr. Yang sought $37 per share. The negotiating breakdown triggered a shareholder revolt led by billionaire investor Carl Icahn, who called for Mr. Yang’s ouster in July.

Mr. Icahn reached a truce that put him and two allies on Yahoo’s 11-member board, but he still has been lobbying for Yahoo to pursue a deal with Microsoft that would either involve selling the company in its entirety or just its search engine, which ranks a distant second to Google Inc.

Monday’s shake-up comes as no surprise, given the challenges facing Yahoo.

“The shareholders were ready to pick up pitchforks and torches,” said technology analyst Rob Enderle. “If Jerry wasn’t a founder, he already would have been gone” months ago.

Mr. Bostock made it sound as if the change in command had been in the works for some time. “Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level,” he said.

Mr. Yang, who started working on Yahoo with Stanford University classmate David Filo in 1994, will revert to “Chief Yahoo,” a titular role that he filled before replacing former movie studio boss Terry Semel as CEO in June 2007. He will also remain on Yahoo’s board of directors.

“All of you know that I have always, and will always bleed purple,” Mr. Yang wrote Monday memo to employees, referring to the company’s official color.

Sue Decker, Yahoo’s president, is expected to be among the candidates to succeed Mr. Yang, although she has been an integral part of the management team that has exasperated shareholders.

Dan Rosensweig, who resigned as Yahoo’s chief operating officer, also could be lured back as CEO, or the board could turn to one of its own directors, such as former Viacom Inc. CEO Frank Biondi or former Nextel CEO John Chapple.

Mr. Yang had been pursuing a strategy that he thought would prove Yahoo was worth more than Microsoft was willing to pay, but the rapidly deteriorating economy made a comeback seem increasingly unlikely.

After squandering the opportunity to sell to Microsoft, Mr. Yang tried to boost Yahoo’s profit by forging an advertising partnership with Google.

But that backup plan fell through two weeks ago when Google walked away from the deal to avoid a court battle with the U.S. Justice Department, which had concluded the partnership would have throttled competition in the online advertising market.

Just a few hours after the Google partnership collapsed, Mr. Yang publicly said he thought Microsoft should woo Yahoo. But Mr. Ballmer threw cold water on the idea the next day by declaring he doubted a deal could be worked out.

Mr. Yang had also been exploring a possible acquisition of another fading Internet star, AOL, but most analysts panned the idea as a desperation move that threatened to hurt Yahoo more than it would help.

Although Mr. Yang’s tenure as CEO is unlikely to be remembered fondly by shareholders, his legacy as an Internet visionary remains secure.

Yahoo’s remarkable rise began in 1994 when Mr. Yang and Mr. Filo began compiling a directory of their favorite Web links while working on their engineering doctorates in a trailer at Stanford University. They initially called their site “Jerry and David’s Guide to the World Wide Web,” only to later decide to switch to an acronym for “Yet Another Hierarchical Officious Oracle.”

Mr. Yang and Mr. Filo became two of the Internet’s first billionaires not long after Yahoo went public in 1996 with fewer than 50 employees on the payroll. At the height of the dot-com boom, Yahoo’s market value stood at $130 billion. It was at about $16 billion Tuesday.

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