Exclusive - Loeb backs Yahoo's Alibaba cash move - source

SAN FRANCISCO Fri Aug 10, 2012 8:31pm BST

A Yahoo! signs sits out front of their headquarters in Sunnyvale, California, February 1, 2008. REUTERS/Kimberly White

A Yahoo! signs sits out front of their headquarters in Sunnyvale, California, February 1, 2008.

Credit: Reuters/Kimberly White

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SAN FRANCISCO (Reuters) - Yahoo Inc board member and activist hedge fund manager Dan Loeb supported the decision allowing Chief Executive Marissa Mayer to re-evaluate plans for the cash the company gets for selling a portion of its Alibaba Group stake, according to a source familiar with the board's thinking.

Yahoo said on Thursday it might rethink its previously announced plans to return the multibillion-dollar cash windfall to shareholders.

Shares of Yahoo were down 5.2 percent to $15.18 in afternoon trading on Friday as some investors were disappointed about the potential change.

Yahoo struck a deal with Alibaba in May in which Yahoo was to sell one-half of its 40 percent stake in the Chinese Internet company for at least $6.3 billion in cash and up to $800 million in new Alibaba preferred stock.

The board of directors, including Loeb, backs Mayer's long-term vision for Yahoo, the source said. That vision could include more creative uses of the Alibaba cash than undertaking a share buyback, the source added.

The source declined to be named due to lack of authorization to speak about board deliberations.

Mayer, a former Google Inc executive, was hired in July to revamp Yahoo. A Web pioneer, Yahoo has seen its revenue fall amid competition from Google and Facebook Inc, and changes in the online advertising market.

Mayer will look at the company's growth and acquisition strategy, the restructuring plan launched by her predecessor, and Yahoo's cash and capital allocation strategy, Yahoo said in Thursday's filing with the Securities and Exchange Commission.

Some analysts expect Mayer to use the cash from the Alibaba deal to finance new acquisitions -- a scenario that some investors may be wary of, given Yahoo's poor track record with expensive acquisitions in the past.

"We think it is now more likely than not that Yahoo will make material acquisitions and we think investors may have doubts that acquisitions will create value," wrote Bank of America analyst Justin Post in a note to investors Friday. The bank downgraded Yahoo's stock to a neutral rating following the announcement about the Alibaba cash and Mayer's review of the company's plans.

Loeb's support for a plan that might keep money inside the company is somewhat unusual for an activist hedge fund investor. Such investors typically take big stakes in under-performing companies and push for changes that result in the relatively swift return of money to shareholders - through share buybacks, special dividends, asset sales or the sale of the whole company.

Loeb, the CEO of hedge fund Third Point, secured three seats on Yahoo's board in May following months of vocal criticism of the company's direction. Third Point is among Yahoo's largest shareholders, with a 6 percent stake in the company.

"The investment he's making sounds like it's going to be longer than he would typically do," said Donald Steinbrugge, managing partner of Agecroft Partners, a hedge fund consulting and third-party marketing firm, referring to Loeb.

"He obviously has a lot of faith in how they plan to deploy that capital," Steinbrugge said.

(Additional reporting by Alistair Barr; Editing by Jeffrey Benkoe, Phil Berlowitz and Steve Orlofsky)

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