30-12 Case 30 32 Challenges The privately ownedAlibaba Group was one of China's biggest Internet companies special- izing in electronic commerce. In 2005,Yahoo invested $1 billion inAlibaba for a 40 percent equity share. It also handed over the responsibility of operating its Yahoo! China Web site to Alibaba. The two companies began negotiations in 2010 on the future of Yahoo's invest- ment. Softbank, a Japanese Internet and telecommunications company, had also invested in Alibaba. In addition, Softbank had a 65 percent stake in Yahoo ! Japan, with Yahoo own- ing the rest. Alibaba and Softbank wanted to buy out Yahoo's stake in Alibaba as well as its stake in Yahoo! Japan. While Yahoo agreed to the Alibaba divestment (it had made no decision on the Yahool Japan issue), the bone of contention was in structuring the deal to minimize Yahoo's tax bill on the capital gains. In late August 2)L2,Yahoo announced that it would sell half its Alibaba investment immediately for $7.6 billion (resulting in after-tax cash of $4.3 billion) and the rest when Alibaba was expected to go public in 2015.24 The key challenge to Mayer in this area was how to use the proceeds of the Alibaba investment. Early on, she had indicated that she would use the proceeds to make critical acquisitions, but pressure from shareholders had caused her to back off from this position. In addition to the Alibaba issue, Mayer faced the main strategic challenge of establish- ing Yahoo's identity as a company. While it had started out as a technology firm, its princi- pal revenue source was currently advertising. However, many Yahoo insiders still regarded themselves as working for a technology company that had a presence in media. Daniel Loeb's insistence that Yahoo's best bet was to find a way to monetize its visitor traffic in- dicated that he wanted Yahoo to morph into a media company. Given Mayer's technology background and experience at Google, would this morphing play to her strengths? The growing markets were Asia and Africa, regions where Yahoo had only a weak presence. Should Yahoo acquire companies to benefit from growth in these markets? In addition, the Internet was moving to a mobile platform where Yahoo had only a marginal presence. White the mobile platform was showing tremendous growth (albeit from a small base), it was not clear whether it would support traditional revenue sources. Management faced these issues prior to meeting with the company's board in September. ,aCharles Arthur, "Yahoo Sells Chunk of Alibaba Stake," The Guardian, September 19,2012, www.guardian .co.uk/technologyt20l2lsepllglyahoo-efinance, accessed September 24,2012. 33 Yahoo!Inc.30-11 EXHIBIT 6 Yahoo! [nc. Selected Stock price Data (g at close of market) Date Prire 19.18 11.73 15.01 16.12 15.47 15.74 Source: Yahoo! Finance, http://finance.yahoo.com_/, accessed May 2,2012. Enter Marissa Mayer Early Actions Prior to joining Yahoo, Marissa Mayer had a 13-year car.

1. 30-12 Case 30
32
Challenges
The privately ownedAlibaba Group was one of China's biggest
Internet companies special-
izing in electronic commerce. In 2005,Yahoo invested $1 billion
inAlibaba for a 40 percent
equity share. It also handed over the responsibility of operating
its Yahoo! China Web site
to Alibaba. The two companies began negotiations in 2010 on
the future of Yahoo's invest-
ment. Softbank, a Japanese Internet and telecommunications
company, had also invested
in Alibaba. In addition, Softbank had a 65 percent stake in
Yahoo ! Japan, with Yahoo own-
ing the rest. Alibaba and Softbank wanted to buy out Yahoo's
stake in Alibaba as well as
its stake in Yahoo! Japan. While Yahoo agreed to the Alibaba
divestment (it had made no
decision on the Yahool Japan issue), the bone of contention was
in structuring the deal to
minimize Yahoo's tax bill on the capital gains. In late August
2)L2,Yahoo announced that

2. it would sell half its Alibaba investment immediately for $7.6
billion (resulting in after-tax
cash of $4.3 billion) and the rest when Alibaba was expected to
go public in 2015.24 The
key challenge to Mayer in this area was how to use the proceeds
of the Alibaba investment.
Early on, she had indicated that she would use the proceeds to
make critical acquisitions,
but pressure from shareholders had caused her to back off from
this position.
In addition to the Alibaba issue, Mayer faced the main strategic
challenge of establish-
ing Yahoo's identity as a company. While it had started out as a
technology firm, its princi-
pal revenue source was currently advertising. However, many
Yahoo insiders still regarded
themselves as working for a technology company that had a
presence in media. Daniel
Loeb's insistence that Yahoo's best bet was to find a way to
monetize its visitor traffic in-
dicated that he wanted Yahoo to morph into a media company.
Given Mayer's technology
background and experience at Google, would this morphing play
to her strengths? The
growing markets were Asia and Africa, regions where Yahoo
had only a weak presence.

3. Should Yahoo acquire companies to benefit from growth in
these markets? In addition,
the Internet was moving to a mobile platform where Yahoo had
only a marginal presence.
White the mobile platform was showing tremendous growth
(albeit from a small base), it
was not clear whether it would support traditional revenue
sources. Management faced
these issues prior to meeting with the company's board in
September.
,aCharles Arthur, "Yahoo Sells Chunk of Alibaba Stake," The
Guardian, September 19,2012, www.guardian
.co.uk/technologyt20l2lsepllglyahoo-efinance, accessed
September 24,2012.
33
Yahoo!Inc.30-11
EXHIBIT 6 Yahoo! [nc. Selected Stock price Data (g at
close of market)
Date Prire
19.18
11.73
15.01

4. 16.12
15.47
15.74
Source: Yahoo! Finance, http://finance.yahoo.com_/, accessed
May 2,2012.
Enter Marissa Mayer
Early Actions
Prior to joining Yahoo, Marissa Mayer had a 13-year career
atGoogle, where she held a va-
riety of positions. She was responsible for launching more than
100 products at Google and
was a key player in developing Google's home page. Her last
position at the compaiy was
vice-president of Local, Maps, and Location Services, where
she led the producfmanage-
ment, engineering, design, and overall strategy for the Google
Maps suite of products.2r
One of the first things that Mayer did at Yahoo was to announce
that she would review
every hire that the company made, a practice similar to that
done at Google by the com-
pany's two co-founders. While this slowed down hiring
atYahoo, one anonymous company
employee was quoted as saying:
It's gotten a little frustrating. But I can't say that I blame her.
The problem at yahoo in the
past couple of years has been "B-players" hiring ,.c-p1ayers,,
who were not Iired up to come
to work and were tolerated too long. I mean nobody good
wanted to come to yahoo. If I am

5. inheriting a mess like that, I'd want to review all the talent that
comes in the doors. too.22
She quickly instituted a number of changes at the company.
principal among them were
a weekly all-employee meeting every Friday afternoon, free
food in the company cafeteria,
replacement of employees' BlackBerry phones with a choice of
iphones or Android-based
phones, and the launch of a program termed "pB&J,,'an acronym
for process, Bureaucracy,
and Jams' The PB&J program was to solicit employee input on a
variety of things including
improving the work culture and increasing p.odo.iiuity. one
employ"L."u","d to Mayer,s
actions:
while the free food and iphones are nice, it was the midnight
email that finally won my
heart' Redundant processes and policy, and bureaucracy, are the
worst enemies to innovation
and efficiency. ofcourse, change will not happen overnight.
There are so many things that
need to improve in order to get us back in the same league as
Google and Appte. But I have
faith in the company and Marissa. And I trury hope the company
*itt u" gr;t again.2:l
2r"Board of Directors," Yahoo!,
http://investor.yahoo.neL/directors.ctm, accessed September lg,
2012.
22Nicholas Carlson. "Marissa Mayer Reviews Every New Hire
at yahoo," B usiness Insider,september 4, 2012,
www'businessinsider.com/marissa-mayer-is-reviewing-every-
single-new-hire-at-y

6. ahoo-2012-g,accessed
September 19,2012.
z3Nicholas carlson, "Marissa Mayer ssnt a Late Night E-mail
promising to Make yahoo .The Absolute Best
Place to Work."' Business In.sider, Au,grtst27, 2012,
www.businessinsider.com/marissa-mayer-sent-a-late-night-
email-promising-to-make-yahoo-the-absolute-best-p1ace-to-
work
-2012-8, accessed September 1g, 2012.
Jan.,2,2669
,Jan. 2. 2009
Jan'.4 201.0
,J,aln,,3,201 | '
lJan,3, 20,12 t.
rSept. 4;2012:,
29
30
31
30-10 Case 30
EXHIBIT 5 tConrinuedi
Assets
2010 20"11

7. Current Assets:
Cash and Cash Equivalents
Short-term Marketable Debt Securities
Accounts Receivab{e, net
Prepaid Expenses and Other Current Assets
Ttrtal Current Ass€ts
Long-term Marketable Securities
Property and Equipment, net
Goodwill
lntangible Assets, net
Other Long-term Assets
lnvestments in Equity lnterests
Total Assets
1,526,427
1,357.661
1,028,900
432,550
4,345,s48

8. 744,594
1,653,422
3,681,645
255,87A
235,136
4,01 1,889
14,928,1M
1,562.390
493,1 89
1,037 ,474
359,483
3,452,536
474,338
1.710,888
3,900,752
254,600
220,628
4,749,044

9. 14,782,786
Liabilities & Equity
Current Liabilities:
Accounts Payable
Accrued Expenses & Other Current Liab.
Deferred Revenue
Total Current Liabilities
162,424
1,248,792
254,656
1,625,872
166.595
&48,044
194,722
1,247.3i61
Long-term Deferred Revenue
Capital Leases & Other Long-term Ljab.
Deferred & Other Long*terrn Liabilities
Total Liabilities

10. Stockholders' Equity
Total Liabilities and Equity
56,365
142,799
506,658
2,331,694
12,596,41A
14928,104
43.639
134,90s
815,534
L201,439
12,581,347
14,7&2,786
&hoo! lnc' Summary Statements of Cash Flow (in $ thousands
for year ended December 31)
2AA9 2010 20r1
Net Cash Flow Provided by Operating Activities
Net Cash (Used in) Provided by tnvesting Activities

11. Net Cash (Used in) Provided by Financing Activities
Effect of Exchange Rate Changes on Cash & Cash Equivalents
Net Change in Cash & Cash Equivalents
Cash & Cash Equivalents at Beginning of bar
Cash & Cash Equivalents at End of year
1,3 i 0,346
(2,419,238)
34,597
57,429
(1,016,866)
2,292,296
1,275,430
1,240,19A
509,915
(1,s01.706)
2,598
250,997
1,275,43A
1,526,427

12. 1,323,806
242362
(1,455,958)
(34,247j
35.963
1,526,427
1,562,390
Source: Adapted fromYahoo! Inc. 201 I 10-K. Yahoo! Forrr 10-
K, Annual Report,
http://investor.yahoo.net/secfiling.cfm,/filinglD=1193125
-12-86912&ClK=l 01 1006. accessed Mav 2. 2012.
30-8 Case 30
EXHIBIT 4 Yahoo! Inc. Revenue Breakdown
"Listings-based services revenue, transaction revenue, and fees
revenue.
24
lEurope, Middle East, and Africa.
Source: Yahool Form 10-K, Annual Report,
http://investor.yahoo.net/secfiling.cfm?filinglD=1193125-12
-86972&CIK=101 1006, accessed May 2, 2012.

13. needs by delivering ilnovative and meaningful search, local, and
listings experiences on the
search results pages and across Yahoo!"1e In December 2009,
Yahoo entered into a ten-year
agreement with Microsoft whereby Microsoft would get a 12
percent share of search rev-
enues and would provideYahoo with the technology that ran its
search engine. The agreement
discontinued Yahoo's existing relationship for this purpose with
Google. Yahoo generated
revenues from this category via listing fees and transaction fees
in addition to advertising.
Products such as Yahoo ! Homepage, Yahoo ! News, and Yahoo
! Finance formed the cor-
nerstone of the Media category whose goal was to engage users
with "compelling con-
tent."zo While the majority of revenues for this category came
from advertising, Yahoo!
Sports services such as Yahoo! Fantasy Football were fee-
based. Exhibit 4a provides a
breakdown of Yahoo's revenues.
Yahoo managed its global business geographically, reporling
financial results by
three segments-Americas, EMEA (Europe, Middle East, and
Africa), and Asia Pacific
(Exhibit 4b reports financial results per geographic segment).
Yahoo sites were in 45 lan-
guages in 60 countries.
Sales, Marketing, and Product Development
Since advertising was the primary revenue driver, Yahoo
organized its sales team into three
categories based on the type of customer served. The field

14. advertising sales channel sold
display and search advertising to leading advertisers and
agencies. The mid-market chan-
nel sold advertising to medium-sized businesses, and the
reseller/small business channel
sold it to regional and small business advertisers. While Yahoo
employed its own sales
teams in the United States, it used a combination of internal
salespeople and external sales
'elbid.
,olbid.
25
26
30-6 Case 30
17
in its decision. . . . We are not opposed to a transaction with
Microsoft if it is in the best
interests of our stockholders. Our position is simply that any
transaction must be at a value
that fully reflects the value ofYahoo!, including any strategic
benefits to Microsoft, and on
terms that provide certainty to our stockholders.l3
Carl lcahn's Proxy Fight
After Microsoft withdrew its offer on May 3,2008, activist
investor Carl Icahn (who had
invested in Yahoo earlier and owned 4.98 per cent of Yahoo's

15. common stock) launched a
proxy fight to replace all l0 board members with his own
nominees at the upcoming annual
stockholders' meeting. Icahn's intention was to force the sale of
Yahoo to Microsoft upon
gaining control of the board.la On July 2l,2}}},Yahoo
announced that it had settled with
Icahn by appointing him to the board and giving board seats to
two of his nominees. In re-
turn, Icahn agreed to withdraw his proxy fight. He eventually
resigned from yahoo's board
in october 2009 and in 2010 began to rapidly decrease his
investment in the company.
Third Point LLC's Activismls
Daniel S. Loeb, who headed the hedge fund Third Point LLC,
began accumulating yahoo
shares in 2011 and by March 2012 held,5.8 percent of the
company's outstanding shares.
He began to actively campaign for changes after several
unfruitful meetings *itn CgO
Scott Thompson. Loeb was firm in demanding that Yahoo's
strategic direction should be
to find ways to monetize the millions of site visitors per month.
Rather than focus on
pushing Yahoo into new businesses, which was Scott
Thompson's vision, Loeb wanted
Yahoo to focus on its media business. He argued that in hiring
two executives to the board
with a technology background (whichyahoo had done in
February 2}r2),yahoo was mov-
ing away from the media business. In addition, Loeb demanded
that the company sell
its Alibaba stake as well as its 35 percent stake in Yahoo Japan
and use the capital to
strengthen its core advertising business. Loeb filed a proxy

16. statement to gather support for
his four nominees (three of whom had advertising backgrounds,
the fourth was himself to
replace the more technology-oriented yahoo board members.
"Resum6gate"
On May 3,2012, a Silicon Valley Web site reported that Daniel
Loeb had written to yahoo,s
board about a possible discrepancy in CEO Scott Thompson's
educational background.
Loeb had alleged that Thompson had inaccurately indicated that
he had graduated with
dual degrees in accounting and computer science, whereas in
reality he had graduated
with just an accounting degree. Since Yahoo had reported
Thompson's educational back-
ground in regulatory filings, this error amounted to a
misrepresentation of facts.16 yahoo's
board admitted that Loeb was correct in his accusations and
after an internal investigation,
Thompson resigned from the company. patti S. Hart, a member
of yahoo's board who
r3Yahoo! Press Release, April 7, 2008,
http://files.shareholder.com/downloads/yHOO/2435053555xox1
g5760/
ab576752-f008-457a-b678-
186098240468NHoo_News_2008_4_7_General.pdf,accessedMa
y 2,2012.
laDavid Litterick, "Yahoo! Rejects Microsoft and Carl Icahn
Bid," The Telegraph,July 14, 200g, www.tele$aph.
co.uk/finance/newsbysector/mediatechnologyandtelecoms/2'793
196/Yahoo-rejects-Microsoft-and-Carl-Icahn-
bid.html, accessed September 18, ZOl2.
t5Evelyn M' Rusli, 'Activist Investor Charls Plan to Revitalize
Yahoo," The New yorkTimes, March 9,2012,

17. pp. B1, B5; and proxy statements filed by Third Point LLC,
http://files.shareholder.com/downloads/yHOO/
2435053555x0x5899140-12-1761 101 1006/fl1ing.pdf, accessed
May 2,2013 and http://flles.shareholder.com/
downloads/YHoo/2435053555x0xS899140-12-204/101
1006/filing.pdf, accessed M ay 2,2012.
r6Poornima Gupta, "Yahoo CEO Scott Thompson's Resume Is
Faked, Third point Alle ges," The Hffington
Posl, www.huffingtonpost.com/2012/05103/scott-thompson-
resume-yahoo_n_1475700.htm1, accessed
September I 8. 201 2.
..
18
19
Yahoo!Inc. 30-5
12 Jerry Yang, one ofY. ahoo's co-founders, replaced Terry
Semel as cEo in 2007. yahoofaced intense competition from
Googre in ihe intern"t advertising ,f*" una the two com_panies
competed with each other to acquire complementary businesses.
A combinationof intensifying competition and the global
economic slowdtwn resulted in yahoo,s firstemployee layoffs in
earry 200g and a second round at the end of the same year. In
200g,Microsoft made a second bid to acquire Yahoo, after its
2006 bid had been rejected. JerryYang and Roy Bostock
(yahoo's board chairman) convinced ,t .
"o-pury,s
board to reject

18. 13
:lit",, ffi'I?;ff"':i":,Jff:#J;TJ,St31I"ffi; ;;;*ed wi,h,urningaround
the company and toward thaigoal she announced a search engine
partnership withMicrosoft' sold several u1!9-+errormirg
acquisitions, and discontinue? certain services. Inaddition,
Bartz expanded yahoo's gtouit presence by making key
acquisitions in regionssuch as the Middle East. Howev"r,
yunot,, revenues declined ior the third consecutiveyear in fiscal
2010 and the company announced further emplo; i;;#, to cur
cosrs. Bartzwas fired by Yahoo's board in rate 2011 after failing
to turn *orrirrr" company. she was
14,.,]ii",ffi ;ii:ilir#.'J,IT,ylTi;Jlffi ffl :H,Lll;f"T,lHll:*L;;;
would become the company's new cEo. Thompson,s tenure was
short as he was forcedto step down on May 13, 2072, after it
was revealed that he had falsif,ed his educationalbackground on
his resum6. During Thompson's tenure, Daniel Loeb, who
controlled thehedge fund rhird point LLC, became u, u"iiuirt
investor atyahoo anJ demanded sweeping
1 s
::Hq ffi i:frlT"ir{,ilffi T::,'"il1"10,," "*".;"*. ;",10".,,,.,0"d
downand FredAmoroso became board chairman. yahoo
appointed Ross Levinsohn (who headedthe company's media
business) as interim CEo and began an intense search for a
perma_nent leader. At the Jury 12,2012, annual
srockholders,Leeting, o"ri"i Loeb and rwo ofhis nominees were
erected to yahoo's board. on July 16, 2012, theboard announced
thatMarissa Mayer, a senior executive at rival Google, was to be
yahoo,s new cEo. RossLevinsohn' who had fuly expected to be
named yahoo', p".-ur"ricEo, ."rigr"d fromthe company after
Mayer,s appointment.rr
CORPORATE GOVERNANCE AT YAHOO

19. The Microsoft Bid
16 on February 1,2008, Microsoft made an unsolicited bid to
acquire yahoo by offering (incash and stock) g3l per sharg
valuing the company at $44.6Ulttion. yahoo,s stock pricehad
closed at $19.18 the previous aay. whenyanoo's board rejected
the offer, Microsoftincreased its bid price to $33 per share.12
once again, yahoo rejecteo rrr" ula, demanding$37 per share
(valuing Yahoo at $47.5 bilil;j. In a leter to Steve Ballmer,
Microsoft,sCEO, offering the rationale for rejecting the bid,
yahoo stated:
our Board ' ' ' unanimously concluded that it (the bid) was not in
the best interests of yahooland its stockholders. our Board cited
yahoo ! 's grobal brand, rarge worrdwide audience,significant
recent investments in advertising pruiro.-, and future growth
prospects, free cashflow and earnings potential, as well as it,
,iurturtiut unconsolidated investments, as factors
rtKara Swisher' "Exclusive-Ross Levinsohn Departs Yahoo,"
http://allthingsd. corl20120730las-expected-ross-levinsohn-
depalts-yahoo/, accessed May Z, iOtZ.
r2"Microsoft
Makes unsolicited Bid for Yahoo," 1y'8
CNEWS.com,www.msnbc.msn .cofii/idt22g47626/ns/business-
us-business/t/microsoft-makes-unsoricit"a-iia-vur.,oo,
accessed September rg, 2012.
yahoo!Inc.
30_3
:Jr:T"Tt"l
and Twitter had a distinct advantage over porrars and,search

20. sires. A 2012 study
Facebookr",";J;:i;":T;.'ff]l]ilffi::;,:l";?1:hrXf.:1il]*H::Hn:ff
10.6 percent for all of Googte.s sites, *jS.S percent foryahoo,s
sites.6 rnrernet adverrising r"r;ru;r i;;J',in,,"d r,u,", ,r;r;
$J;;u,uio, in 2,lls(comparedto $39.5 bilion for broadcast
t"f"u,.ion'urA $:O Uifflon ior .uUr" ,"f"U.ion), representing
trJffiffi;lf,ilH:llover 2010 An industry ".p;;;;r;; the signincance
orcross_
This historic m<
anincreased"{t"n!-,1ff iff ffi i:l,JJ#iil:il:J;ti"J"H1T,ffi
":,"_t"."T#::."spending their time_in digital media. fuJing
pur,,n" SrO Oiiir", Uroi"" the interactiveadvertising industrli
confirms its .entrai ,fu." in ,"aiu. a..or, ;;, display, anddigital
video, digital provides a wearrh oiippo.unrty for brands
unJ.orrr.".r. with rheproriferation of smartphones and tabtets, i,
i; rit rv *", ,h" ;;;;alu, g.or,r, in mobilewill continue as these
screens u*r-.."", more crucial to the marketing mix.67 The
fastest-growing segment of Intemet.advertising was mobile
advertising, which to-
1131#;1, ?itt1tT.1:H['""
u"
"i'
i + q perc ent il;6 il ;n inaus trv Exo;; ;-
The year 2011 saw mobile advertising become a meaningful
category. By combining someof the best features of the Interner,
"ri* *t,n portabilityind ro"u'tioi-nu."a rechnology,
frx3*:Xl:ffing
is enabring ,"*r",".i to a"iiu". tr,n"iy,;;;;;;;;evant, and rocar
see strons **,* l#llli#*ffiH1,:?1,"#,,Jfr::,t". ;, t;i;;"," reasons

21. that we
8 In 2011' the 10 leading search and portal companies accounte
d tor TTpercent of totalonline advertising revenues, while the
next l5 accounted r., li'rir."rt. search revenuesof $14'g billion
(up from srr.z uiiri"r'ir roto-r made up 46s iercent of rorar
revenues(up from 44.8 percenr *??l:),*fril. ji.pf"V_retated
uar"rtirirgi":us $11.1 biltion (versus$9'6 birion in 20r0) or34.g
percenr. o;;" two prevarentpric'ing moders. perlormance_
"*,:Lf:*r,;:;:
,* cricr_ir'ougtr; r,uJ u"", ,r," a"_l,iri",ite1 since 2006 and ac_,
- -
"1,", """i,
:;' ;::;; ;: T, ;:ii::',H: :;,:, _ *,,;"_ ;" around 6 1 3 mi,,ionweb
sites worldwide in Februaryiniz','"{irrrin"ur, in"r"ur" r-i ra,
miltion in2011.several factors were responsible for the growth
of the rnternei ciri"r among them werethe increasing
affordabiiity or.orpr,"rr"io increasing rn,.rn.i'p.r.tration rares.
[n avirtuous cycle, as componenr prices fell .upiory,-rC".i#;;r."^
passed on the pricedecreases to customers, who in turn ir.."".";
,rr" a"-una-fficr,'i"ror* to rower pricesdue to manufacturers'
,".ororri"" oi r"rr" "ro+r..rr^ug io,J* ,urirgr. For example,nearly
80 percent of U.S. househords owr"i
"
ac-,n ,orz, ipL#i o"r""r, in 2000, andthe vast majority of users
had bought a fi;. a similar device for Int2011, Norrh America
had the r*g"?jr"riJ penetration .","
"r
rr.uiTrlr"ir?,'i"",il#] #oceania/Austraria with oz.s
perc"eni;;;;;"p" with 6r.3 percent. However, the fastest_growing
market in percentage terms was Africa, and the fastest-growing
market in absolute

22. 5IAB. Internet Advertising Report , Aprlt 2012,www.iab.net,
accessed september 24, 2012.
lbid.
8lbid.