Daniel Loeb's Wild Yahoo Ride: $610 Million in Pretax Profit

9:26 PM PST 07/22/2013 by Paul Bond
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Daniel Loeb

Third Point hedge fund sold 40 million shares for more than twice what it paid for them about two years ago.

Shares of Yahoo dropped 4.3 percent Monday after it was learned that activist investor Daniel Loeb and his Third Point hedge fund had sold 40 million of its shares back to Yahoo, representing a pretax, two-year profit of around $610 million for Third Point.

The drop was being blamed on the notion that Loeb -- who also quit his position on Yahoo’s board of directors -- must think the stock is at peak value for a while, several analysts said on Monday.

STORY: Yahoo To Buy Back Most Stock Owned by Daniel Loeb, Activist to Leave Board

More than 46 million shares traded hands on Monday, whereas the three-month average trading volume for Yahoo is less than 18 million per day.

Yahoo is paying Third Point $29.11 per share, more than twice what the hedge fund paid for the stock as it accumulated its stake over the past couple of years. The sale will leave Third Point with 20 million shares, representing a stake of about 2 percent of Yahoo, down from nearly 6 percent.

On Monday, Loeb’s activism was being credited for Yahoo’s rising stock price over the past few years, in part because he was instrumental in ousting both CEO Scott Thompson and his successor, Carol Bartz, and installing current CEO Marissa Mayer.

Yahoo said that Harry Wilson and Michael Wolf, Third Point’s other two representatives on Yahoo’s board, also submitted their resignations as directors.

STORY: Top Media Exec Mickie Rosen to Leave Yahoo

On Monday, Brian Wieser of Pivotal Research wrote that, in light of Third Point selling its stock and its representatives quitting the board, “it will become increasingly important for Yahoo’s management team to distinguish its corporate strategy from its product strategy in order to provide investors with an enhanced degree of confidence that it can thrive in years ahead despite the conditions that are impacting its core business today.”

He also wrote, though, that the stock should be propped up by enthusiasm over Alibaba, the Asian Internet company in which Yahoo holds a 24 percent stake. Alibaba could go public this year at a valuation of $70 billion-$80 billion, representing about $18 billion for Yahoo. On Monday, Yahoo’s market capitalization was $30.5 billion.

Loeb leaving Yahoo’s board and significantly selling down his stake in the company could also have ramifications for Sony, where he, as a shareholder through Third Point, has been advocating for a spin-off of entertainment assets.

While Sony CEO Kazuo Hirai “is still weighing the idea,” The U.K. Telegraph theorized on Monday, “it feels unlikely that Mr. Loeb’s cut-and-run behavior at Yahoo will help him win support.”

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