By Michael Flaherty
(Reuters) - Yahoo Inc (O:YHOO) on Wednesday agreed to add four new independent directors to its board, bowing to pressure from activist hedge fund Starboard Value LP and averting a proxy fight ahead of its upcoming annual meeting.
Yahoo said Starboard Chief Executive Jeffrey Smith and three other directors will join the board immediately. Smith and the three directors were on the slate Starboard proposed last month to overthrow Yahoo's entire board if a deal between the two sides failed before the annual meeting.
Smith, in a critical part of the agreement, is also joining Yahoo's strategic review committee, which is overseeing the company's sale of its core business. Smith has said he does not trust Yahoo's board and management team with handling the sales process, given past missteps.
Yahoo said in a statement that two incumbent directors would step down at the annual meeting, but did not name the individuals. With the addition of the four new directors, Yahoo's board will have 11 members.
Yahoo has not set a formal date for its annual meeting, but historically it is held in late June
Yahoo's agreement with Starboard means the company can now put the prospect of a costly and distracting proxy fight behind it, and focus on the sale of its core search business, which is fielding bids from potential buyers.
"This constructive resolution will allow management and the board to keep our focus on our extremely important objectives," Yahoo CEO Marissa Mayer said in the statement.
The agreement indicated Yahoo shareholders were advocating for the company to settle, while Starboard was willing to give up the challenging prospect of a full board takeover for four director seats inside the company, including a seat on the strategic review committee.
Starboard, which owns about 1.7 percent of the company, has been pushing for changes at Yahoo since 2014. The activist hedge fund took aim at the company's leadership in a January letter, implying that Mayer and top officials needed to go.
Starboard backed up its threat of launching a proxy contest, proposing last month a nine-member director slate to overthrow Yahoo's board. While a full board victory is rare in shareholder activism, Starboard won its standoff with Darden Restaurants Inc (N:DRI), convincing shareholders to replace all board directors of the Olive Garden parent.
The three other directors to join Yahoo's board are Tor Braham, Eddy Hartenstein and Richard Hill, part of Starboard's proposed slate which it will now withdraw.
Reuters reported on April 19 that Verizon Communications Inc (N:VZ) was set to advance to the second stage of bidding for Yahoo's core assets. Verizon has signaled its interest in the auction, though its bid is expected to compete against other companies and private equity firms.
Softbank Group Corp (T:9984), which owns 43 percent of Yahoo Japan Corp, and China's Alibaba Group Holding Ltd (N:BABA), in which Yahoo holds a 15.5 percent stake, have not yet participated in the auction, according to the Reuters report.
After shelving plans to spin off its stake in the Chinese e-commerce company, pressure built on Yahoo from Starboard and other shareholders to sell its core business, as efforts to turn around the Internet pioneer struggled under Mayer's leadership.
The price tag Yahoo could reap from the sale is estimated between $3 billion and $5 billion, Reuters has previously reported.
(Additonal reporting by Rishika Sadam in Bengaluru; Editing by Savio D'Souza and Meredith Mazzilli)