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Eric Jackson was sitting in his hotel room on Sea Island, Ga.

, watching his kids


splash around in the pool, when he clicked publish on his latest blog post for Fo
rbes.com. Jackson, an influential hedge-fund manager, had become fixated on Yaho
o and the efforts of its chief executive, Marissa Mayer, to turn around the enor
mous yet floundering Internet company. It was July 21, 2014, almost exactly two
years to the day since Mayer took over, arriving at Yahoo s headquarters to an unf
urled purple carpet and Shepard Fairey-style HOPE posters bearing her face. During
those 24 months, Mayer eliminated dozens of products and rebooted others. She a
cquired 41 start-ups and even hired Katie Couric. But just one week earlier, May
er announced the company s lowest quarterly earnings in a decade. Jackson argued i
n his post that Yahoo no longer made sense as an independent entity. Instead, it
might be a nice takeover target for one of the tech industry s Big Four: Apple, F
acebook, Amazon or Google.
Jackson s conclusion wasn t based simply on a discouraging quarter. It was a result
of an eye-opening calculation he had performed
what s known on Wall Street as a su
m-of-the-parts valuation. Yahoo had a market value of $33 billion at the time, b
ut that figure owed largely to its stake in Alibaba, the Chinese Internet conglo
merate. According to Jackson s valuation, Yahoo s stake in Alibaba was worth roughly
$37 billion. But if you subtracted that position, the entirety of Yahoo s core bu
siness, all its web products and content sites, actually had a market valuation
of negative $4 billion. A conquering company could theoretically buy Yahoo, sell
off its Asian assets and absorb its business units free. This sort of sale woul
d make a lot of money for Yahoo s shareholders, Jackson wrote, even if it meant gu
tting the company and losing Mayer as C.E.O. after only two years.
A day after his post, Jackson received an unusual email. A major Yahoo sharehold
er had written to explain that he and many other investors, along with numerous
employees and advertisers, had themselves become extremely frustrated with Mayer
. Her turnaround plan, he said, had failed. The start-ups she acquired (most not
ably the social blogging platform Tumblr, which Yahoo bought for $1.1 billion in
2013) had failed to revive the company s flat revenues of roughly $5 billion per
year. Nor had Mayer succeeded, despite her track record overseeing Google s search
engine, in turning any of Yahoo s many products into an industry leader. There we
re also a number of embarrassing management setbacks. The best outcome for Yahoo
, the shareholder said, might be to sell the company.
One day later, on July 23, Jackson published a subsequent Forbes column that out
lined parts of the shareholder s argument. It went viral within the investment com
munity, and in the following days, Jackson fielded several calls from other sign
ificant Yahoo investors, including managers of large mutual funds and hedge fund
s, who encouraged him to continue his campaign. Jackson s own fund didn t have the c
apital to mount an offensive, which would require buying a large stake in Yahoo
and using it as leverage to effect changes within management. But he knew someon
e who might. Jeffrey Smith, who ran an activist fund called Starboard Value, had
recently led such a campaign against AOL, leading the company to eliminate its
money-losing local news network, Patch. While still on vacation, Jackson looked
up Smith s email on his Bloomberg terminal. Within hours, the two men were on the
phone with a handful of associates from Starboard.
Continue reading the main story
Jackson s dire calculation of Yahoo s value would soon be reinforced in the markets.
On Sept. 19, Alibaba went public on the New York Stock Exchange, closing at $93
.89 per share. But as Alibaba s stock soared, Yahoo s dropped, an indication that th
e market seemed to concur with Jackson s analysis: Yahoo s core business was worth l
ess than zero dollars. A week later, Smith published an open letter calling for
Yahoo to divest itself of its Alibaba assets, return the money to its shareholde
rs and then merge with AOL. Redundancies could be eliminated, thousands of peopl
e could be fired and two former Internet superpowers would be downsized into a s
ingle and steady (if uninspiring) entity that sold ads against its collective on

line properties
news, blogs and Web products like email, maps and weather. We tru
st the board and management will do the right thing for shareholders, even if th
is may mean accepting AOL as the surviving entity, Smith wrote.
Dynamic and wildly profitable Internet companies like Facebook and Google may ge
t most of the attention, but Silicon Valley is littered with firms that just get
by doing roughly the same thing year after year has-beens like Ask.com, a searc
h engine that no longer innovates but happily takes in $400 million in annual re
venue, turning a profit in the process. Mayer, who is 39, was hired to keep Yaho
o from suffering this sort of fate. She believed it could again become a top-tie
r tech firm that enjoyed enormous growth and competed for top talent. And two ye
ars in, Mayer, who has a tendency to compare herself with Steve Jobs, wasn t about
to abandon her turnaround plan. On the afternoon of Oct. 21, she entered a web
TV studio on Yahoo s garrisonlike campus to present the company s latest quarterly r
esults. But the presentation effectively became a response to Starboard s campaign
. Even though Yahoo s revenue had decreased in five of the past six quarters, Maye
r attested that she had great confidence in the strength of our business.