Yahoo CEO Thompson Resigns

Yahoo! Inc. (YHOO) announced that its chief executive officer Scott Thompson has resigned after it was revealed that his academic credentials were inflated.

Thompson came from eBay Inc. (EBAY) in January to replace Carol Bartz, who was dismissed by the Yahoo board in September 2011. Yahoo hired Thompson hoping that he would turn around the struggling Web portal.

On May 3, Daniel Loeb, a principal shareholder (5.8% stake in Yahoo through the Third Point LLC fund), discovered that Thompson's official Yahoo biography exaggerated his academic credentials, showing a dual degree in accounting and computer science, while his actual degree was only in accounting.

Thompson’s departure will be expensive for Yahoo. Besides an annual base salary of $1 million, Thompson will receive a hiring bonus of $1.5 million in cash and $5.5 million in stock, according to Yahoo’s agreement letter filed with the U.S. Securities and Exchange Commission.

According to regulatory filings, Thompson is also set to receive an inducement equity award worth $5 million. Thompson is also eligible for incentive compensation of as much as twice his annual salary, depending on performance, with the bonus guaranteed to be at least $1 million this fiscal year.

Thompson’s leadership proved beneficial in his four months of work at Yahoo, as evident from the earnings results reported on April 17. Yahoo reported first quarter net sales of $1.08 that was ahead of both the consensus and management guidance. He also made efforts to reduce operational costs by eliminating 14% of its workforce or about 2,000 jobs.

According to sources, Thompson will be replaced on an interim basis by Ross Levinsohn, head of global media at Sunnyvale, California.

The dismissal of the third CEO in just three years will not only intensify the turmoil at Yahoo, but will also have a negative impact on its shareholder confidence. Despite being one of the biggest brand names, Yahoo has performed very poorly in the last few years. The social networking sites Facebook and Google Inc. (GOOG) have been persistently eating into Yahoo's market share.

That said, the turnaround in Yahoo’s board may be a positive for the company. Daniel Loeb and the Third Point LLC fund have been publicly criticizing Yahoo’s board for quite some time because of its inability to take appropriate action at the proper time, pointing to the company’s failure to sell itself to Microsoft Corp. (MSFT) at an attractive valuation (among other things).

They have been asking for a reshuffling of the board to bring in fresh members and set the company back on track. Investors are clearly in support of this decision, which is the main reason for buoyant share prices.

Yahoo shares carry a Zacks #2 Rank, implying a Buy rating for the near term (1-3 months).

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