Yahoo! Inc. (YHOO - Analyst Report) announced that it will repurchase 40 million shares of its common stock held by hedge fund Third Point for $29.11 per share. Third Point was Yahoo’s largest investor, so the news sent Yahoo! shares down 4.29%.
The company stated that the transaction will be funded primarily with cash and will be accretive to earnings per share (EPS). The company now has less than $700 million available under the existing $5 billion buyback plan announced last year.
The transaction will leave Third Point LLC fund with about 20 million shares, giving the company less than 2% ownership in Yahoo. All three directors nominated by Third Point -- Daniel S. Loeb, Harry J. Wilson and Michael J. Wolf will resign from Yahoo's board on Jul 31.
In 2012, Daniel Loeb, through his Third Point LLC fund, had amassed millions of Yahoo shares as he tried to influence the company's operations more effectively. Loeb had revealed that Yahoo's former chief executive Scott Thompson's academic credentials were inflated, which led to Thompson's departure in May 2012.
Very soon Loeb was added to the company's board of directors, and two months later Marissa Mayer was announced as the new chief executive officer of the company. Mayer had been focusing on the Internet company’s strong franchises, including e-mail, finance and sports.
Recently, Mayer stated that Yahoo is intent on getting the right people on board, which would result in properly focused products, leading to stronger traffic, and thereby revenues. Her leadership has proved beneficial for Yahoo, as evident from the share price increase of 76.78% in last year.
Now, at a point where Yahoo is making money, Loeb’s decision to cash his profit and depart might be a matter of concern for investors and the reason for the slight decline in share price. However, we remain confident about Mayer’s strategy and believe that the company is headed in the right direction. Also the company’s second-quarter non-GAAP earnings exceeded the Zacks Consensus Estimate driven by Yahoo’s equity holdings in Alibaba and Yahoo Japan.
Yahoo shares currently have a Zacks Rank #2 (Buy). Other stocks that are performing well at current levels include SanDisk , Syntel Inc. (SYNT - Snapshot Report) , and InvenSense Inc. (INVN - Snapshot Report) , all carrying a Zacks Rank #1 (Strong Buy).