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Jeff Smith, CEO and chief investment officer of Starboard Value, L.P., speaks at a panel discussion at the SALT conference in Las Vegas May 14, 2014. SALT is produced by SkyBridge Capital, a global investment firm. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS)
REUTERS/Rick Wilking
Starboard CEO Jeffrey Smith.
MANY SEATS AT THE TABLE

How Starboard Value, the hedge fund trying to dismantle Yahoo’s board, has shaken up Corporate America

By Alice Truong

Making good on an earlier threat, Starboard Value is soliciting support from Yahoo shareholders to replace the company’s entire board of directors with nine nominees of its choosing.

On March 24, Starboard CEO Jeffrey S. Smith wrote in an open letter to Yahoo’s investors telling them it is waging a proxy battle because the company’s management and board “have repeatedly failed shareholders.”

Starboard has already successfully pressured Yahoo to abandon its planned spinoff of its Alibaba stake. Since then, it’s been pushing Yahoo to sell its core business. Accusing Yahoo of lackadaisically engaging with potential bidders, Starboard says that it “cannot envision a scenario where the shareholders of Yahoo would entrust the current management team and Board.”

Ahead of Yahoo’s annual shareholder meeting—the date of which has not yet been announced but must take place by July 22 (13 months from its last meeting)—Starboard and Yahoo both will canvas shareholders to support their side.

For Yahoo, this is déjà vu. A 2012 proxy fight helped Dan Loeb’s Third Point get him and two allies on the board, which paved the path for Marissa Mayer becoming CEO. For Starboard, this too is just another ordinary day.

Spun off from Ramius in 2011, the $3 billion hedge fund is known for shaking things up. It’s currently embroiled in proxy battles with three other companies: Macy’s, Marvell Technology Group, and Insperity.

In its first year, the firm waged a proxy battle with AOL. Though it failed to win any of the three board seats it wanted, there have many victories along the way, most notably ousting the entire board of Olive Garden’s parent company, Darden Restaurants, in 2014.

In its five-year history, Starboard has waged 46 campaigns and gained 66 seats, according to FactSet, which tracks the 13D regulatory filings that activist investors submit if they’ve amassed a stake of at least 5%. Thirty-one of its campaigns have related to adding or removing directors to the board.

In some of its battles, Starboard gets almost everything it asked for—board representation or adherence to its suggestions for ”maximizing shareholder value.” In the vast majority of cases, Starboard has won at least some concessions, something that’s already happened in the Yahoo battle with the abandonment of the Alibaba spin and the exploration of a sale.

In all, Starboard has jockeyed for 105 board seats. Of the 66 seats it’s gained, not all were the result of proxy battles. Some were concessions to avoid a proxy fight. In some instances, company management just gave in to all of Starboard’s demands.

Here are five noteworthy battles Starboard has waged and how they turned out:

AOL

Starboard got on AOL’s radar in December 2011, when it asked for a meeting with the board to discuss its strategy. After AOL responded that it was committed to its current plan, Starboard acquired a 5.1% stake in February 2012, according to a 13D filing. Two months later, it said it was seeking three seats on the eight-person board. Shareholders rejected all of Starboards nominees at AOL’s annual meeting. The day after the June 14 meeting, Starboard reduced its stake to less than 5%.

Staples, Office Depot

In December 2014, Starboard revealed it had a 6.1% stake in Staples and increased its holding to 9.9% in Office Depot. The acquisitions set the stage for Starboard to push the two office-supply chains to merge. In February 2015, the companies agreed to the deal, which is currently under regulatory review. Three months later, Staples nominated a Starboard-approved director to its board. At the end of the year, Starboard reduced its stake in Office Depot to 5.5% and sold its shares in Staples.

Tessera Technologies

Starboard went after Tessera Technologies, which licenses technology and intellectual property to companies, in January 2012. It initially nominated three directors to the six-person board, but withdrew its nominees after management asked it for time to execute its plans. By the end of the 2012, Starboard said it would nominate seven members. When two directors resigned in February 2013, Starboard said the board had weak corporate governance and that it would seek a majority of the seats at the annual meeting.

All the while, Starboard, which acquired a 7.4% stake, accused CEO Robert Young of having an “inappropriate relationship with a female employee” in a private letter to Tessera and demanded his resignation. When Tessera said there was no basis in its accusations, Starboard sent an open letter to shareholders defending the allegations. Tessera then offered Starboard two seats in a reconstituted board and announced Young would step down. On the day of the annual meeting in May 2013, Tessera settled with Starboard, giving it six nominees in the new 10-person board. Tessera also agreed to reimburse Starboard for up to $650,000 in expenses. Two years later, Starboard reduced its stake to less than 5%.

Wausau Paper Corp.

Starboard persuaded Wausau Paper Corp. to give it five seats from 2012 to 2014. In the first instance, Starboard urged a strategic review of a sale of both its tissue business and the entire company. To avoid a proxy fight, Wausau agreed to expand its board from six to eight directors, letting Starboard nominate two directors not affiliated with the firm. In 2013, Starboard announced it would nominate three candidates. Wausau then expanded the board to nine directors and gave a seat to Starboard.

In January 2014, Starboard, which by then had a 15% stake, nominated three candidates to the board and told Wausau it needed to cut costs, buy back shares, and replace management or explore a sale. In July, the company settled and gave Starboard another seat. In addition, Wausau agreed to reimburse Starboard up to $350,000 in expenses.

Darden Restaurants

In its biggest showdown to date, Starboard completely replaced the 12 directors on the board of Darden Restaurants, a restaurant group that included Olive Garden and Red Lobster. In 2013, Starboard pushed Darden to create a real-estate investment trust for its property holdings and create another entity for its brands. It also criticized the company for a proposed spin off of Red Lobster, saying it undervalued the brand. Red Lobster was sold to Golden Gate Capital for $2.1 billion in 2014.

Frustrated that the company ignored Starboard’s request for a special shareholder meeting to vote on the separation, Starboard nominated 12 candidates to the board. After the sale was finalized, Darden said it would nominate nine directors, conceding three seats to Starboard. But shareholders voted for all 12 of Starboard’s nominees, and Starboard CEO Jeffrey Smith was appointed independent non-executive chairman. At the annual meeting, Smith said: “I love Olive Garden unlimited breadsticks.”