She who hesitates is doomed as the activist investors go to work on Yahoo

US Outlook

Marissa Mayer’s job at the helm of Yahoo is on the line thanks to activist investors (Reuters)

In general, companies should steer well clear of activist investors. They are usually after a quick buck – despite paying lip service to feel-good business school terminology such as “shareholder value” and “strategy reviews” – and mostly they want the cash on the books and to hell with any long-term commitment.

But that does not mean they should be dismissed lightly. Far from it. Yahoo’s Marissa Mayer should take an investment by Starboard Value, an activist hedge fund, very seriously. Her job is on the line.

Officially, Starboard has taken a position in Yahoo to try to prevent the company from spinning off its stake in Alibaba, the Chinese online wholesale giant. It is arguably the brightest part of Yahoo’s business these days, as demonstrated by the sense that Yahoo’s share price is now in effect an Alibaba tracker. Where Alibaba goes, Yahoo follows.

Starboard argues that Yahoo should not list its stake because of a potential multi-billion-dollar tax liability. And its alternative is actually quite sensible, even if it would render an expensive chief executive such as Ms Mayer surplus to requirements.

The hedge fund wants Yahoo to abandon its plans to float its Alibaba stake and instead sell its search and display advertising business – the core of what the company became following the first internet boom. In essence there would be nothing left other than stakes in Alibaba and Yahoo Japan, an independently profitable and growing business, so Yahoo would become a true tracker of other businesses rather than anything of any independent worth.

Whatever Yahoo does with the stake, it needs to make its mind up. Ms Mayer announced that it would list its Alibaba holding separately back in February, and appears no closer either to actually doing it or ditching the idea.

It’s a tough call for Ms Mayer, for sure, especially as Alibaba has endured a roller-coaster year since it went public. But her lack of decisiveness has opened the door to Starboard, and her modus operandi, which seems to be to dither while Alibaba sorts itself out, cannot be defended for much longer.

Companies such as Starboard don’t just look for special situations and cash on the books, they also look for leaders who can be forced into making tough decisions they would otherwise rather just leave alone, just as Ms Mayer is doing at Yahoo. If she won’t do it, Starboard will almost certainly suggest someone who will.

Ms Mayer should be worried. Earlier this month, Starboard forced out the chief executive of Advance Auto Parts less than three months after buying a stake in the company. Advance is no tiddler to bully around either – it is a company worth $12bn (£8bn).

Meanwhile one of the most powerful women in American business, Ellen Kullman, left the chemicals giant DuPont in October despite winning a proxy battle against activist investor Nelson Peltz of Trian Partners. Ms Kullman arguably did a decent job at DuPont too, something it is becoming increasingly difficult to say about Ms Mayer. Activist investors do not always get their way – but even when they don’t, heads often roll.

However benign Starboard’s opening gambit might appear, at least relatively, activist investors are rarely satisfied until there is a proper fight.

Ms Mayer was widely criticised (albeit unfairly) in September for announcing she would only take two weeks’ maternity leave. If she loses to the activists, she could end up with far more maternity leave than she planned for.

Even Tinder can’t afford a boss with brains in his briefs

As far as publicity ahead of an initial public offering goes, Sean Rad’s Evening Standard train-wreck interview was about as bad as it gets. Perhaps the chief executive of the hook-up phone app Tinder believes that there truly is no such thing as bad publicity, but investors and even users might disagree.

Should anyone be shocked that the 29-year-old chief of what is basically a casual sex app turns out to be a little douchey? Probably not, but you would at least expect him to have some idea of what the word “sodomy” means.

How bad was the interview? Put it this way: boasting about turning down a model who was “begging” for sex but who wasn’t enough of “an intellectual challenge” for him wasn’t the worst of it.

Match Group, the parent company of Tinder, may have distanced itself from Mr Rad’s comments, but the damage is done and Tinder may end up looking for another chief executive sooner rather than later. He has form, after all, and more fool the company for inviting him back to take the reins in August just five months after he was dismissed following a role in a sexual harassment lawsuit.

Mr Rad replaced a former eBay executive called Christopher Payne, who apparently was “not a good fit” for Tinder. If Mr Rad is a better fit then one has to wonder just how bad Mr Payne was.

There is a serious point to this. Running a significant subsidiary of a publicly listed company is not the kind of job for someone who appears incapable of understanding what not to say in an interview just days before an IPO. As investors have found out before (for proof, see what happened to Dov Charney and American Apparel), a high-profile executive who can’t keep his thoughts out of his underpants is a liability not an asset.

Match, in essence, is a conglomerate of online dating businesses. It runs 48 websites, of which Tinder, by virtue of its mobile app and mass appeal among 20-something singles, is expected to be the main driver of growth. Like Square, the float ended up priced at the lower end of expectations but still managed to value the company at $2.4bn.

Based on Mr Rad’s past form and interview style, Match is going to need all of the money it raised in the IPO – not for the company but to fire-fight PR disasters and have lawyers on call. If Match has any desire to be seen as a serious investment then it needs to replace Mr Rad, fast. Perhaps it could find a replacement on Tinder?