Among investors, Starboard Value CEO Jeff Smith holds a rare and distinctive title: He’s the only one who’s ever managed to replace the entire board of a Fortune 500 company. When the activist won all 12 board seats at Darden Restaurants (DRI) in 2014, it effectively amounted to a coup, as a Fortune profile “The Investor CEOs Fear Most” put it at the time.
Now, Smith is staging a similar coup d’etat at Yahoo (YHOO), looking to replace all of the company’s board members—including CEO Marissa Mayer—and then some. Smith’s Starboard has nominated nine new directors for the struggling tech company’s board, which currently only has seven members. At an activist investing conference on Tuesday, Smith reiterated his plans for Yahoo, which has put its core business up for sale at Starboard’s insistence. “When you have the entire board looking to row in the same direction, that’s more efficient,” Smith said at the 13D Monitor Active-Passive Investor Summit at the Plaza Hotel in New York.
In a follow up interview with CNBC, Smith said that he was open to making a deal with Yahoo rather than going to a proxy fight, but wouldn’t say what exactly he would be looking for in a settlement. He said that he thought Yahoo could fetch as much as $10 billion on its own, but then later referred to $5 billion to $8 billion as a more likely range. He also said that while it appeared the Yahoo board “seemed” to be taking the bidding process seriously, he said he still had some doubts about whether Mayer and her executive team would follow through with the process.
“Just because they are going through with the sale process does not mean it will result in an outcome, or an outcome that will be good for shareholders,” said Smith.
Smith added that he wasn’t so optimistic about Yahoo’s first quarter earnings, which are scheduled to be announced later on Tuesday. “I think it will be more of the same,” said Smith. “I suspect earnings will either be in line with expectations, or disappoint.”
While in previous activist campaigns Smith has sought a few seats as opposed to a completely new slate of directors, he wants to repeat the success he enjoyed at Darden, whose board he just left himself two weeks ago after reaping a more than 68% return on the stock versus 18% for the S&P 500. “It seemed to work really well,” Smith said at the conference. “While it’s not always the case where you can replace the entire board, replacing the entire board certainly is easier.”
Smith’s win at Darden didn’t even resemble a typical hedge fund activist’s campaign. “This was most akin to taking over a company as it relates to a private equity deal,” Smith said at the conference, “We didn’t buy the company and we didn’t really take it over, we replaced the board with a bunch of independent directors. That is historic.”
In addition to Yahoo, “we’re looking to replace the whole board” at California-based pharmaceutical company Depomed (DEPO), Smith said. “And there may be others, but it may be a case-by-case basis.”
Starboard is now the top shareholder activist in North America, with even more activist campaigns since 2011 than Carl Icahn, according to a new report by Mergermarket’s Activistmonitor. Smith and his team have replaced 151 directors on 38 different boards. What’s more, in 29 separate campaigns to nominate directors, he’s only lost twice, including his 2012 proxy battle at AOL (AOL).
Since Smith’s victory in Darden’s proxy contest, though, none of his other activist campaigns have made it as far as a shareholder vote, as his target companies have opted to accept at least some of Starboard’s terms instead of going to a proxy fight. “I don’t know if it’s companies realizing that we do a really great job, or if they’re afraid of us because we did such a great job taking out the board at Darden,” Smith said.
The hedge fund has averaged annual returns of more than 30%, more than double the S&P 500’s returns over the same period. Out of Starboard’s 32 investments large enough to require a 13D filing, the firm has only lost money on seven.