Jerry Yang’s departure from Yahoo Group gives more insight into the remedies

Jerry Yang’s announcement that he’d be resigning from the Yahoo!, Alibaba Group, and Yahoo! Japan boards tonight is very significant.

Whether intentional or not, Yahoo!’s board has long been “Jerry’s Board.”  Directors would weigh whether or not they should do something by the litmus test question: “What does Jerry think of this?”

That deference, over the years has resulted in a board that has been way too slow and complacent.

With him leaving, there should be a number of changes to Yahoo! in the weeks ahead and they all should be very constructive for the stock.

Specifically, you should look for:

1. The cash-rich split to be consummated.  This deal values Yahoo!’s stakes in Alibaba Group and Yahoo! Japan at $17-18 billion.  The tax-efficient format means that Yahoo! shareholders would see at least $8 billion back in cash and another $4.5 billion in “other assets.”

2. A new board.  In my view, this entire board (for the most part) is about to be cleaned up.  It would shock me if Dan Loeb wasn’t offered a board seat.  The new folks will bring a vitality and shareholder-friendliness to the board room for the first time in…. a long time.

3. A special dividend.  With at least $8 billion in cash coming back, plus the $3 billion they already have on their balance sheet, you should expect the shareholders will cry for a super-sized special dividend.

4. Stock buyback. Depending on how big the dividend is, it’s likely that shareholders might also push for some kind of stock buyback to further support the stock price.

5. Taking on more debt.  There are many who believe that Yahoo! – properly run – should take on more debt to further do buybacks and dividends in the future.  Many believe the company could raise up to $6 billion in debt based on its $1.5 billion EBITDA run-rate.

In the coming months, I see the stock heading to the mid-$20s.  With some of these other moves outlined here, the stock could easily move back into the $30s a year from now.

It would be ironic if Jerry’s departure ushered in the actions leading to the stock rising above $33/share – which was Microsoft’s (MSFT) last offer before terminating discussions in 2008.

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Posted by Usman Khalid on Jan 18 2012. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.