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Yahoo soap opera features new cast of leaders

Monday - 5/14/2012, 6:57pm  ET

AP Technology Writer

SAN FRANCISCO (AP) - Yahoo's dysfunctional turnaround efforts have morphed into a Silicon Valley soap opera, one that has taken another strange twist with the Internet company's ousting of CEO Scott Thompson just four months after his arrival.

Thompson's hasty departure, amid a furor over an inaccurate resume, ushers in a new cast of characters led by interim CEO Ross Levinsohn and New York hedge fund manager Daniel Loeb. It was Loeb's sleuthing skill that uncovered Thompson's misleading biography. With a 5.8 percent stake in the company, Loeb now gets even more leverage with three seats on Yahoo's 11-member board of directors. He and the rest of Yahoo's board will appoint one more "mutually agreeable" director, according to a Monday regulatory filing.

If Yahoo's saga is to end happily, the company's new leadership will have to develop a strategy to lure back Web surfers and advertisers who have been defecting to Internet rivals Google Inc. and Facebook Inc. At the same time, they will likely need to complete the complicated negotiations to sell part of the company's prized stake in China Alibaba Group.

Those objectives ranked high on Thompson's priority list, too, but a ficitious college degree that appeared on his official biography ended his brief tenure.

Another factor may have contributed to Thompson's short stay. Citing unnamed sources familiar with the matter, The Wall Street Journal reported that Thompson, 54, had informed Yahoo's board last week that he has been diagnosed with thyroid cancer. Even so, Thompson was still scrambling to save his job last week as he deflected responsibility for a bio that included a college degree in computer science that he never received. Thompson, in fact, graduated from Stonehill College, near Boston, in 1979 with a degree in accounting _not computer science.

Incensed at initially being denied a seat on Yahoo's board, Loeb exposed the phantom degree earlier this month.

In a sign that he was forced out, Thompson left Yahoo without a severance package, according to documents filed Monday with the Securities and Exchange Commission. He is also surrendering unvested stock awards valued at $16 million. Thompson will get to keep a $1.5 million cash bonus and restricted stock valued at $5.5 million that Yahoo paid him to compensate for benefits he gave up at his former job at PayPal, an online payment service owned by eBay Inc. Yahoo had been paying Thompson a $1 million annual salary, which could have been supplemented by a bonus of up to $2 million.

Analysts are divided on whether Yahoo is now in a better position to lift its long-slumping stock price and revive its revenue growth.

Macquarie Securities analyst Ben Schachter thought Yahoo was making its greatest progress in years under Thompson's aggressive leadership. Now, there's a risk that Thompson's exit will waste four months of turnaround work _ a setback that Schachter says Yahoo Inc. can't afford at this critical juncture.

"What is really scary about all this is the Internet is the fastest moving industry in the world, so the time they are losing is very dangerous," Macquarie said.

Other analysts believe Levinsohn is a better fit as Yahoo's CEO than Thompson, who had spent the previous seven years immersed in processing digital payments at PayPal.

"Levinsohn is an extremely qualified executive, in our view, and will serve as a calming force amid the turmoil," Stifel Nicolaus analyst Jordan Rohan wrote in a Monday email. "He has a visceral understanding of what it takes to succeed in the media business. We believe that under new leadership, Yahoo is more likely to re-emerge as a premier, highly profitable online media."

It's a sentiment shared by some investors. Yahoo's stock added 31 cents, or 2 percent, to close Monday at $15.50.

Levinsohn's name had been bandied about as a CEO candidate before the company hired Silicon Valley veteran Carol Bartz to fill that role in January 2009. Bartz subsequently hired Levinsohn as one of her top lieutenants in late 2010 and then his name came up as a potential successor to Bartz after Yahoo fired her eight months ago. Yahoo instead appointed its chief financial officer, Tim Morse, as interim CEO before settling on Thompson.

Levinsohn, 48, is best known for running the Internet operations of Rupert Murdoch's News Corp. when that company bought MySpace, then the Internet's top social network, for $580 million in 2005. Levinsohn then negotiated a lucrative advertising deal that made the MySpace deal look like a coup. But then Facebook emerged as the Internet's social hub, and News Corp. wound up unloading MySpace for just $35 million last year, long after Levinsohn had left.

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