Yahoo reshuffles board in truce with rebellious shareholder

The board will be pared to 11 directors within two months under the agreement. Yahoo will pay Starboard up to $2 million as a reimbursement for legal fees and other expenses the New York hedge fund incurred while preparing to its attempt to overthrow Yahoo’s board.

Although Starboard won’t be able to exert control over the process, it will have a seat at the negotiating table as Yahoo talks to suitors interested in snapping up its email, advertising tools and other digital services, including widely read sports and finance sections.

As one of Yahoo’s newly appointed directors, Starboard CEO Jeffrey Smith will become part of a special committee assessing the bids along with two incumbent directors, Tom McInerney and Eric Brandt.

“Now, Starboard will be able to see if there are compelling bids that should be pursued, or if the bids look too low,” said Mizuho Securities analyst Neil Doshi.

Yahoo Inc. has declined to provide details about the auction since announcing its intent to explore a possible sale two months ago. Analysts have estimated its Internet operations could fetch anywhere from $4 billion to $10 billion, with most investors now betting that any sale would come at the high end of that range.

Verizon Communications, which last year bought AOL Inc. for $4.4 billion, has publicly declared its interest in adding Yahoo to its portfolio and is widely considered to be the most likely buyer.

Smith began pushing Yahoo to combine its operations with AOL in 2014.

A decision on whether Yahoo will sell or retain its Internet operations is expected to be reached before the company’s annual meeting, which will be held by June 30, according to a Wednesday regulatory filing.

Yahoo’s stock shed 16 cents to close at $36.95.

Mayer and Yahoo’s board have been under mounting pressure to make dramatic changes because the Sunnyvale, California, company has been struggling for years to sell more digital advertising, despite marketers shifting more of their budgets in that direction.

Most of that money has been flowing to Google and Facebook, at the same time Yahoo is facing new threats from popular messaging apps such as Snapchat.

Mayer, Yahoo’s CEO for nearly for four years, is nearly done laying off 15 percent of the company’s workforce and closing unprofitable services as part of her latest turnaround plan.

If the Internet operations aren’t sold, Mayer plans to spin them off into a new company, leaving Yahoo with prized stakes in China’s Alibaba Group and Yahoo Japan. The Alibaba stake alone is currently worth $30 billion, before factoring in capital gains taxes.

The Starboard mutiny, known as a “proxy fight,” marked the third time that Yahoo had faced a challenge to its board since 2008. Yahoo has now settled each uprising by giving the challenging shareholder seats in its boardroom rather than risk having its entire board overthrown at its annual meeting.

Besides Smith, Starboard’s other representatives on Yahoo’s board are Eddy Hartenstein, former CEO of media companies Tribune Co. and DirecTV; former Deutsche Bank executive Tor Braham; and Richard Hill, chairman of technology company Tessera Technologies Inc.

As part of the boardroom reshuffling, two Yahoo directors will step down at the company’s annual meeting. They are former Wal-Mart Stores Inc. CEO Lee Scott and former Ernst & Young partner Sue James.