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Tuesday, May 15, 2012 - Page updated at 04:30 p.m.

New leaders join cast of Yahoo's high-stakes drama

The Associated Press

SAN FRANCISCO — Yahoo's dysfunctional turnaround efforts have morphed into a Silicon Valley soap opera, one that has taken another strange twist with the Internet company's ousting of CEO Scott Thompson just four months after his arrival.

Thompson's hasty departure, amid a furor over an inaccurate résumé, ushers in a new cast of characters led by interim CEO Ross Levinsohn and New York hedge-fund manager Daniel Loeb. It was Loeb's sleuthing skill that uncovered Thompson's misleading biography.

With a 5.8 percent stake in the company, Loeb now gets even more leverage with three seats on Yahoo's 11-member board. He and the rest of the board will appoint one more "mutually agreeable" director, according to a Monday regulatory filing.

If Yahoo's saga is to end happily, the new leadership will have to develop a strategy to lure back Web surfers and advertisers who have been defecting to Google and Facebook. At the same time, they will likely need to complete the complicated negotiations to sell part of the company's prized stake in China's Alibaba Group.

Those objectives ranked high on Thompson's priority list, too, but a fictitious college degree in computer science ended his brief tenure.

Another factor may have contributed to Thompson's short stay. According to The Wall Street Journal, Thompson, 54, had informed Yahoo's board last week that he has thyroid cancer. Even so, Thompson was still scrambling to save his job last week.

In a sign he was forced out, Thompson left Yahoo without a severance package, according to documents filed Monday with the Securities and Exchange Commission. He is also surrendering unvested stock awards valued at $16 million.

Thompson will get to keep a $1.5 million cash bonus and restricted stock valued at $5.5 million that Yahoo paid him to compensate for benefits he gave up at his former job at online payment service PayPal. Yahoo had been paying Thompson a $1 million annual salary, which could have been supplemented by a bonus of up to $2 million.

Analysts are divided on whether Yahoo is now in a better position to lift its long-slumping stock price and revive revenue growth.

Macquarie Securities analyst Ben Schachter thought Yahoo was making its greatest progress in years under Thompson's aggressive leadership. Now, there's a risk that Thompson's exit will waste four months of turnaround work — a setback Schachter says Yahoo can't afford.

"What is really scary about all this is the Internet is the fastest moving industry in the world, so the time they are losing is very dangerous," Macquarie said.

Other analysts believe Levinsohn is a better fit as Yahoo's CEO than Thompson. Stifel Nicolaus analyst Jordan Rohan wrote in a Monday email: "He has a visceral understanding of what it takes to succeed in the media business."

It's a sentiment shared by some investors. Yahoo's stock added 31 cents, or 2 percent, to close Monday at $15.50.

Levinsohn, 48, is best known for running the Internet operations of Rupert Murdoch's News Corp. when that company bought MySpace, then the Internet's top social network, for $580 million in 2005. Levinsohn then negotiated a lucrative advertising deal that made the MySpace deal look like a coup.

But then Facebook emerged as the Internet's social hub, and News Corp. wound up unloading MySpace for just $35 million last year, long after Levinsohn had left.

In previous jobs, Levinsohn also held top media positions at CBS Sportsline and Alta Vista, a once-popular search supplanted by Google.

As the head of Yahoo's media and advertising services, Levinsohn had been striking more exclusive online video deals featuring well-known talents such as former CBS news anchor Katie Couric and actors Tom Hanks and Jeff Goldblum. Yahoo has also been gearing up to increase its coverage of the Summer Olympics and U.S. presidential election.

Levinsohn has publicly described Yahoo's audience of more than 700 million users as an "untapped jewel" that should be able to attract more advertising than it has in recent years.

Yahoo's annual revenue has fallen from a peak of $7.2 billion in 2008 to $5 billion last year. Advertisers aren't spending as much money at Yahoo largely because they have been getting better returns at Google and at Facebook. Despite the downturn in revenue, Yahoo has become more profitable by cutting costs under both Bartz and Thompson. After laying off 2,000 workers last month, Thompson had started to identify about 50 Yahoo services he intended to close or sell. Levinsohn, who was working closely with Thompson, hasn't indicated if he still intends get rid of all those services.

Although Levinsohn has been labeled as interim CEO, Yahoo's board is probably hoping he performs well enough to become permanent leader, said Gayle Mattson, an executive vice president for executive search firm DHR International.

"I am sure the board is auditioning him because to try to bring someone from outside the company right would be a total disaster," Mattson said.

Levinsohn isn't getting a raise with his expanded responsibilities, Yahoo said Monday. His pay as a Yahoo executive vice president in charge of media content and advertising remains at $700,000 salary with an annual bonus of up to $840,000. Yahoo gave Morse, a 25 percent raise that lifted his salary to $750,000 when he was named Yahoo's interim CEO after Bartz's ouster.

Loeb, who runs the Third Point LLC hedge fund, has gained investors' respect with scathing public criticism that eventually pressured Yahoo to get rid of the remaining directors that sat on the board when the company committed perhaps its biggest blunder — a squandered opportunity to sell itself to Microsoft for $33 per share four years ago. Loeb is expected to play an influential role in Yahoo's on-again, off-again negotiations to sell part of its roughly 40 percent stake in Alibaba, one of the hottest companies in China's rapidly growing Internet market. .

Signaling Loeb's key role in the Alibaba talks, Yahoo appointed him to the board's strategic planning and transactions committee.

Selling part of the Alibaba stake would be welcomed by Loeb and other major shareholders because it would probably produce a multibillion-dollar windfall.

As of March 31, Yahoo estimated its holdings in Alibaba were worth $14 billion. That indicates investors see little remaining value in the rest of Yahoo, which has a market value of $19 billion.

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