Now that Microsoft has withdrawn its unsolicited buyout bid, Yahoo investors who are outraged and seeking to extract some pain may gear up to engage in several actions, ranging from gunning for a board seat to voting "against" re-electing the company's slate, say proxy solicitors and M&A attorneys.
Eric Jackson, a Yahoo shareholder activist, falls into both camps. On Sunday, Jackson said he's planning to launch a "withhold vote" campaign and hopes to run for a board seat when Yahoo holds its next annual shareholders meeting.
"I'm definitely interested in throwing my hat in the ring, if it's allowable, and plan to talk to other shareholders," said Jackson, founder of hedge fund Ironfire Capital. "And whether it's me or other people who get elected, that's fine. Yahoo's current board definitely needs new blood,"
Yahoo, which has yet to set a date for its next annual shareholders meeting, has all 10 board of director seats up for re-election to a one-year term.
In March, Yahoo extended the deadline to nominate dissident directors to its board, in a move to prevent Microsoft from launching a proxy slate under the old deadline. Under the new deadline, a dissident slate has to be named within 10 days after Yahoo announces the date of its annual shareholders meeting.
"Without the threat of Microsoft naming a proxy slate, I would think Yahoo would set a meeting date right away. They want to get that (10-day) clock started ASAP, before shareholders can start organizing," said one proxy solicitor.
The chances of Yahoo losing a proxy fight from outraged investors are slim to none, noted the proxy solicitor.
"To win a proxy fight, you have to have a real message and it only works when it's done in context with a bid," the proxy solicitor said.
While hedge funds may mount a proxy fight, they may seek only one or several seats, rather than the full board, said one attorney who specializes in mergers and acquisitions and has deep experience in hostile deals.
"Investors are afraid to give hedge funds full control of a board, because what do they know about running a company?" said the attorney, adding that the only way a hedge fund could win control of a board is if it had a buyout offer on the table and it would be hard to find a hedge fund that could afford over $47 billion for Yahoo.
Other actions investors may take--such as shareholder activists like Jackson--is to ask shareholders to vote against, or withhold their votes, to re-elect the slate of directors Yahoo puts forward as its nominees at the company's next annual shareholders meeting.
Under Yahoo's bylaws, any director who receives more than 50 percent "against" or "withhold" votes is required to automatically submit their resignation to the board for consideration. The board can either accept the resignation, or reject it.
This corporate governance policy has only been in practice in corporate America for the past couple of years, and in only a handful of cases a director has been voted off the board, only to be reinstated, said the M&A attorney. Such was the case in Carl Icahn's fight with Blockbuster, in which the CEO was voted off the board and then re-instated by Icahn, who had waged the proxy fight.
"Investors want to send a message and will vote off the CEO, chairman and maybe the corporate governance committee members," the attorney said. "They will vote off some members, but not the whole board. It would be like slitting their own throats or burning their stock certificates and saying they won."
And, he noted, even if an entire board were voted off, some companies have provisions where board members can reject each others' tendered resignation, so long as they are not making a decision on their own resignation.
In any case, he said the odds of investors voting off an entire board are "very low."