As Yahoo Turns: Shareholder Mutiny Begins Another Soap Opera

AP Photo/Julie Jacobson

SAN FRANCISCO — Shareholder rebellions at Yahoo are becoming like presidential elections — they are happening every four years.

Activist investor Starboard Value launched a widely anticipated mutiny Thursday in a letter announcing its intent to overthrow Yahoo CEO Marissa Mayer and the rest of the company’s board. It marks the opening salvo in a battle for control of Yahoo Inc. that could drag into the summer.

This is the third attempted coup at Yahoo since 2008, all led by different shareholders fed up with different management teams’ fruitless attempts to turn around the company.

The two previous uprisings in 2008 and 2012 culminated in Yahoo giving board seats to the dissident shareholders. The unrest also contributed to the departures of two of Yahoo’s previous CEOs, company co-founder Jerry Yang and Scott Thompson.

Now, Mayer’s job is in jeopardy as a prolonged revenue slump at Yahoo deepens nearly four years into her reign as CEO.

“We have been extremely disappointed with Yahoo’s dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability,” Starboard CEO Jeffrey Smith wrote in Thursday’s letter.

As part of a process known as a proxy fight, Starboard nominated nine alternative candidates to oppose Mayer and Yahoo’s other current directors at the company’s annual shareholder meeting in June.

The list of alternatives includes Smith, who has been publicly skewering Yahoo for the past 18 months in an attempt to pressure Mayer into taking drastic steps that he believes will boost the company’s stock price.

Starboard, which owns a 1.7 percent stake in Yahoo, engineered a 2014 proxy battle that tossed out the entire board of Darden Restaurants Inc., the owner of Olive Garden.

In a statement, Yahoo said it would review Starboard’s nominees and respond “in due course.” The Sunnyvale, California, company snubbed Smith’s request for representation on its board two weeks ago when it appointed two directors with no ties to Starboard.

The tussle with Starboard comes at a pivotal time for Yahoo. The current board is currently wrestling with a decision to sell Yahoo’s Internet operations to a list of bidders that could include Verizon Communications, AT&T Inc. and Comcast Corp., or stick to Mayer’s latest plan to revive the company.

Mayer is in the process of laying off 15 percent of Yahoo’s workforce and closing unprofitable services, while trying to pull off a complicated maneuver that would spin off Yahoo’s Internet operations into a newly created company.

If the split is successful, Yahoo would then be left with highly prized stakes in China’s Alibaba Group and Yahoo Japan. Those holdings are the main reason that Yahoo’s stock has more than doubled since the company hired Mayer away from Google in July 2012.

But the stock has dropped by about 30 percent in the past 15 months, driven by a downturn in Alibaba’s shares as well as a loss of investor confidence in Mayer.

“I can’t believe she is still there,” said Phil Davis, CEO of PSW Investments, which sold its holdings in Yahoo in 2013. “They just make bad decision after bad decision over and over again. You almost think anybody else would be an improvement.”

After subtracting its ad commissions, Yahoo’s annual revenue has fallen from $5.4 billion in 2008 to $4.1 billion last year with another decline projected for this year. The erosion has occurred even though advertisers have been steadily boosting their digital spending, but most of that money has been flowing to Google and Facebook.

While continuing to back Mayer, Yahoo’s board last month hired three investment banks to help evaluate potential bidders. Analysts have estimated that Yahoo’s Internet operations, including popular email, sports and finance services, could fetch anywhere from $4 billion to $8 billion in an auction.

BGC Financial analyst Colin Gillis expects Starboard to push for the sale with the backing of most Yahoo shareholders.

“A lot of people want to see Yahoo’s value to be unlocked via a sale, but this board seems to lack some urgency in getting that done,” Gillis said. “This (proxy fight) should help keep the board honest.”

Written by Michael Liedtke of Associated Press

(Source: MSN)

Which Presidential Tax Plan Comes Out on Top?

Provided by CNBC

With the field of six candidates, there’s a wide range of tax proposals, each of which have different effects on your wallet. For one, GOP front-runner Donald Trump’s plan would slash tax rates for everyone. The real estate mogul is seeking to eliminate the current top individual income tax rate of 39.6 percent and create three tax brackets: 10 percent, 20 percent and 25 percent.

That said, a few observers have their doubts.

“I don’t think it’s viable,” Tax Foundation President Scott Hodge told CNBC. “I think it’s a dramatic overreach and an over-promise.”

Established in 1937, The Tax Foundation is an independent, non-partisan tax policy research organization. For the current election cycle, the organization compared the economic effects of each of the candidates’ tax plans.

Studies from both the Tax Foundation and another group, the Tax Policy Center, estimate that Trump’s plan could cut tax revenues by more than $10 trillion dollars over the next 10 years, resulting in a large burgeoning of the national debt. Earlier this week, Trump responded by telling CNBC he could close that gap by cutting waste and fraud in government.

However, Hodge branded that as “unrealistic,” suggesting that Trump’s plan doesn’t have structural changes to the tax code that could improve the economy. “It’s really just a tax cut plan, it’s not a tax improvement plan.”

On the other side, Bernie Sanders is promising the opposite: Higher taxes for all. The Democratic candidate/senator from Vermont wants to raise all taxes by 2.2 percent and create four higher tax brackets for high earners. Sanders’ top bracket would tax income over $10 million at a 52 percent rate.

The Tax Foundation’s Hodge found that tax increase could raise $14 trillion but “would come at a dramatic cost to the economy overall.”

Hodge said Sanders’ plans “would reduce the size of the economy by almost 10 percent and eliminate almost five million jobs.”

Provided by CNBC

On Tuesday, primary votes in two battleground states, Ohio and Florida, will head to the polls. Gov. John Kasich and Sen. Marco Rubio are counting on victories in their home states to jump-start their campaigns.

Both candidates want to lower the top corporate tax rate to 25 percent, yet Kasich plans to change personal income tax rates to three brackets, with a top rate of 28 percent. Separately, Rubio wants a top bracket of 35 percent, and that top tax rate would apply to $150,000 in earnings for single filers, and $300,00 for joint filers.

The Tax Foundation found that Rubio’s plan would boost growth and wages by double digits over 10 years, but would cost more than $6 trillion in static revenue.

Hodge said Democratic front-runner Hillary Clinton is “living up to promises to tax high-income people making $250,000 or more.” Under Clinton’s plan, those with incomes above $1 million would pay at least 30 percent in taxes. And she’d add an additional 4 percent tax on income above $5 million.

But Hodge pointed to Clinton’s plan to change how profits on investments are taxed. According to the Tax Foundation, the plan has “increased incentives to delay capital gains realizations,” and would be a drag on growth and wages over a decade.

The former secretary of state “wants to control when people realize capital gains by taxing people at different rates when they actually realize those gains,” Hodge explained. “If you’re at a high income, your tax rate could be as high as 47 percent on your capital gains, and then it lowers to 27 percent over the next seven years.”

The foundation estimated that capital investment would fall by nearly 3 percent over a decade. “It could have a very chilling effect on the market and on investors overall,” Hodge added.

Hodge called Republican Texas Sen. Ted Cruz’s tax reform “a very interesting plan from a couple different perspectives.” Indeed, the organization gave Cruz’s plan high marks on growth, capital investment and jobs added and, of the major candidates’ plans, found it cost the least.

Cruz is calling for the Internal Revenue Service to be abolished, and wants to create a flat 10 percent income tax and add a consumption tax. Yet the left-leaning Citizens for Tax Justice recently branded both Cruz and Trump’s plans as bad for taxpayers.

Hodge said that the Texan “wants to eliminate the corporate income tax and replace payroll taxes with a ‘business activity tax’ … it’s really a Value-Added Tax, much like what they have in Europe.” Cruz wants the consumption tax to be 16 percent.

The VAT raises a lot of “revenue for the federal government, which allows (Cruz) to reduce individual income tax rates down to 10 percent, which is a dramatic cut for everyone,” Hodge added. However, he warned the consumption tax “adds to the price of goods by 16 percent.” He added the 10 percent income tax rate “offsets some of the burden that might come from higher prices.”

As with any legislative plan, Hodge cautioned it should be taken with a grain of salt. “You have to take them as guidelines rather than proposals,” he said.

Written by Trent Gillies of CNBC

(Source: MSN)

The Stock Market is Telling Us Who the Next President Will Be

Provided by MarketWatch

New Hampshire’s primary results are a sideshow compared to the most important political poll of all, the stock market.

Which is ironic, since — in contrast to the presidential campaign so far, which has confused matters more than clarified — the stock market is voting loudly and clearly: The Republicans are likely to regain control of the White House this November.

It’s easy to overlook the outsized influence that the stock market has on presidential politics, since its message doesn’t change on a day-by-day basis, or even week-to-week. Accordingly, it doesn’t fit into the daily news cycle that dominates the media’s attention. That’s why most political commentators rarely mention the stock market or the economy — and focus instead on such earth-shattering topics as the latest “Trumpertantrum” or on which computer server a few emails were sent over a decade ago.

So remember the words of James Carville, Bill Clinton’s campaign strategist in 1992, about what really determines presidential elections: “It’s the economy, stupid.”

Contrast the stock market’s performance in those years in which the incumbent political party retains the White House with how it does when the incumbent party loses. As you can see from the chart below, a strong stock market is correlated with the incumbent party winning. A declining stock market is associated with a change of parties at 1600 Pennsylvania Avenue.

Of course, as statisticians constantly remind us, correlation is not causation. Furthermore, it’s important to emphasize that the results plotted in the above chart are only barely statistically significant, so they should be interpreted as being more suggestive than conclusive. (The absence of strong statistical significance is in large part due to the small sample: There have been just 18 U.S. presidential elections since 1900 in which the incumbent party won, and 11 in which there was a change.)

One silver lining for the Democrats is that the stock market has wasted little time in producing such awful election year performance — with the S&P 500  down almost 10% in just six weeks and the NASDAQ Composite down 15%.

Contrast this year with 2008, for example: Though the stock market in that year wasn’t a stellar performer over the first half of that year, it wasn’t until September and October that the bottom dropped out. That was just a few short weeks before the November election — in which, needless to say, the incumbent party lost.

If my hunch is right, then look for significant new stimulus programs to be announced in coming weeks. For example, the Federal Reserve might not only reverse its interest rate hike decision from last December, but announce a new program of quantitative easing.

It was just such stimulus that stopped the 2011 bear market in its tracks. That major decline began on Apr. 29 of that year, and by mid September the S&P 500 was already down some 17%. On Sep. 21, the Fed announced its so-called “Operation Twist” program, in which it would lengthen the average maturity of its Treasury portfolio away from shorter-term securities to longer-term bonds. The 2011 bear market ended just eight trading sessions later, on Oct. 4.

I wouldn’t be surprised to see something similar in coming weeks.

Written by Mark Hulbert of MarketWatch

(Source: MSN)