Marissa Mayer may tap $7B to turn around Yahoo

Yahoo's new CEO could use funds to make acquisitions, invest in search and technology

When a new CEO comes in, he or she will typically try to make their mark in the company early, to differentiate themselves from prior leadership, and to show that they are now, in fact, in charge. That is especially true in the case of Marissa Mayer, who took over Yahoo in the wake of a devastating scandal that took down the company’s CEO and entire board of directors.

In one of her first acts since becoming CEO in the middle of July, Mayer has ordered a review of the company’s business strategy, according to a filing with the Securities and Exchange Commision on Thursday.

“Ms. Mayer is engaging in a review of the Company’s business strategy to enhance long term shareholder value. As part of that review, Ms. Mayer intends to review with the Board of Directors, among other things, the Company’s growth and acquisition strategy, the restructuring plan we began implementing in the second quarter of 2012, and the Company’s cash position and planned capital allocation strategy,” the filing says.

The company seems to be starting the review with what to do with $7 billion the company made by selling off half of its stake in Chinese e-commerce company Alibaba back in May.

When Yahoo first announced that it would be selling the shares, it was reported that the company would be returning the money to its shareholders. Now those plans have seemingly been put on hold.

“This review process may lead to a reevaluation of, or changes to, our current plans, including our restructuring plan, our share repurchase program, and our previously announced plans for returning to shareholders substantially all of the after tax cash proceeds of the initial share repurchase under the Share Repurchase and Preference Share Sale Agreement we entered into on May 20, 2012 with Alibaba Group Holding Limited.”

Possible uses for the money

So if Yahoo does decide to keep the money, what will it spend it on?

Possibly a refocus on investments in search and communications, or share repurchase and restructuring, Doug Anmuth, analyst at JP Morgan Chase, wrote in a research report.

“Due to Ms. Mayer’s product and engineering focus, we do not believe significant investments or potential acquisition should come as a surprise. We believe Yahoo!’s statement could put pressure on the shares in the near term but we believe reinvestment and greater focus on core operations is required to turn Yahoo! around,” wrote Anmuth.

He believes that Yahoo should begin investing in engineering so that it can compete with Facebook and Google "for users and an advertiser base that is increasingly employing technology and data to drive ad buying decisions."

In addition to reviewing its previous plans for the Alibaba money, Anmuth believes that Yahoo “may also delay or decrease the size of its restructuring plan – instituted by former CEO Scott Thompson – which was expected to yield $375M in annual run-rate cost savings.”

Whatever happens to the money, Yahoo made by selling off its shares, it is clear that Mayer is already putting her mark on Yahoo, and differentiating herself from her predecessor. 

Yahoo stock sank 3.44% in after hours trading on the news, ending at $15.46.

(Image source: missrepresentation.org)