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Now What? Investors See Yahoo Buyback, Alibaba Sale & Possible Takeover

Following the resignation of Yahoo Chief Executive Scott Thompson under the ‘Resume-gate’ pressure applied by Dan Loeb, investors see a share buyback in short order and then a more difficult value-creation process ending in the sale of its Asian assets & an eventual merger, possibly by former suitor Microsoft.

Thompson stepped down after just four months at the helm of the fourth most-trafficked web site after Third Point’s Loeb’s discovered the former eBay executive had a Computer Science degree on his official resume that he apparently never received. The activist hedge fund manager and two of his nominees will now be placed on the board and Ross Levinsohn, global head of media, will take over as CEO.

“Employees lost complete confidence in Scott,” said Eric Jackson of Ironfire Capital after the announcement. “Now, with Ross in place and Loeb and his nominees on the board, there's finally a great opportunity for several positive catalysts in the coming months for the stock.”

Yahoo has $2.65 billion in cash, zero debt and yet it only repurchased $17 million worth of stock in the first quarter. Loeb is likely to urge the company to use that cash and lever up its balance sheet to repurchase more stock. He indicated this much in his first letter to Yahoo in September of last year.

“Continued share count reduction via buybacks and other potential capital structure optimization alternatives would further bolster the Company’s stock price,” wrote Loeb in September 2011. “In addition, based on our discussions with industry experts and entrepreneurs, we believe that with new management, there is significant further value in leveraging Yahoo’s globally trusted franchise and platform for a range of new products and innovations.”
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