Yahoo investors cautiously optimistic following Bartz hire

Investors keep their fingers crossed as Yahoo names former Autodesk CEO Carol Bartz to lead the company. They also hope she can lead them to a Microsoft search deal.

Yahoo investors weighed in with cautious optimism Wednesday following the appointment of former Autodesk CEO Carol Bartz as the embattled company's chief executive.

Yahoo, which formally announced Bartz as its new chief executive after the markets closed Tuesday, climbed as high as 3.2 percent during morning trading Wednesday to $12.49 a share, while the broader markets were down.

While noting that Bartz, for the most part, lacks name recognition beyond Silicon Valley and has little experience with media companies and the Internet, investors pointed to her reputation as a strong operator as boding well for Yahoo's future.

"Yahoo needs more of an operator than a visionary right now," said Kenneth Smith, senior portfolio manager for Munder Capital Management, who runs the Munder Internet Fund. "Yahoo has missed out on some opportunities like social networking, but at the end of the day, the company needs someone to manage all their valuable assets and stem the brain drain."

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Smith, whose fund held 727,280 shares of Yahoo as of November 30, pointed to the company's frequently visited Web sites as a core asset. But he noted past redesigns of the sites have appeared somewhat haphazard and that's an issue he believes can be addressed with strong operational skills.

Bartz, Smith noted, had a good reputation while at Autodesk. He added she managed to turn things around with its portfolio of businesses and reignite growth for the drafting and design company.

Shareholder activist and Yahoo investor Eric Jackson , meanwhile, said he was initially disappointed with the selection of Bartz, but in the last 24 hours has become cautiously optimistic as more information about the new CEO has surfaced.

Nonetheless, Jackson noted some concerns still linger, such as the fact that Bartz managed a smaller workforce than what she'll encounter at Yahoo, and he questions her ability to manage a high-growth business given that he considers Autodesk to play in a sector with slower growth.

"I'm still skeptical. I have a show-me attitude," Jackson said. "Right now, Yahoo is guilty until proven innocent."

Jackson said he hopes Bartz will demonstrate within the next 30 to 60 days that she has clear ideas of what she is going to do to reignite Yahoo's various media businesses.

Smith, however, said after Bartz has "one quarter under her belt," he hopes she'll show signs of grasping the issues that plague Yahoo and its solutions. And by the end of the second quarter, he hopes to see Bartz implement some of those solutions.

"I think it'll be the second half of the year before we begin to see some impact," Smith noted.

Smith, while declining to say whether he plans to increase his fund's position in Yahoo now that Bartz has been named CEO, noted that the fund has generally been increasing its stake in the Internet search pioneer over the last year.

Jackson said he plans to sit it out on the sidelines for now and keep an eye on Bartz's performance before considering whether to increase his holdings, which current are a few hundred shares.

Wall Street analysts, meanwhile, where largely neutral to bullish on Bartz's appointment, noting there was not much more the new CEO could do to damage Yahoo.

Analysts with Cowen & Co. noted in a research note Wednesday:

We do not believe the announcement of Carol Bartz as CEO and the resignation of president Sue Decker will result in a material change in Yahoo's prospects. We think the odds of a search deal with Microsoft and/or an acquisition of AOL increase under the new CEO, but the terms may not be highly attractive due to the current economic environment.

UBS Securities analyst Ben Schachter, meanwhile, sounded more bullish in his research note Tuesday regarding Bartz's appointment as Yahoo CEO:

Vision still undetermined, but progress now at least possible.

With Ms. Bartz first approached just this past December, her full vision for the company must still be evolving. Still, simply by putting in place a capable outsider with a strong track record, Yahoo should finally be able to make decisions on various strategic and operational choices.

And while we don't know the new direction just yet, clearly Ms. Bartz and the board have discussed their views and walked through scenarios, including potential partnerships (MSFT, AOL, etc.). Given the recent stagnation at Yahoo, we think almost any movement from here will be forward.

One source, familiar with the board's thinking, noted that the company may not necessarily keep Microsoft at bay while Bartz ramps up her learning curve at the company.

Depending on the type of offer that Microsoft may bring to its door, Yahoo could potentially react immediately, noted the source.

"It depends on their offer," said the source. "If they were to come to (Yahoo) with an offer of $33 a share, (the company) would be stupid to say no now."

Microsoft, or not , Yahoo's board believes it has landed one of the top technology executives.

"(Executive recruiter) John Thompson was told to get the top five candidates, no matter where they were from," said the source.

Bartz, who was the only candidate offered the job, was selected for her track record, added the source, noting it was among a number of other characteristics that made her the top choice.

Investors Jackson and Smith hope Bartz has it within her skill set to signal to Microsoft a willingness to sit back down at the negotiating table.

Both investors do not expect anything to happen with Microsoft in the immediate future, with Jackson predicting as long as one to two months and Smith as long as three months before signs will surface that any such activity is underway.

 

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