Yahoo faces blood in the boardroom

Yahoo chief executive, Scott Thompson is facing a proxy war with hedge fund Third Point that will decide whether he or a group of directors nominated by the hedge fund’s founder, Dan Loeb, get to sort out the troubled search engine outfit.

Thompson is working on his plans to overhaul Yahoo’s operations, but Third Point has its own ideas about what to do with the company.

According to Reuters, Third Point wants to stick four directors on the board and has officially launched a campaign to have them installed. Its cunning plan is to have a fire sale of Yahoo assets and return cash to shareholders.

The hedge fund is Yahoo’s largest institutional shareholder with a 5.8 percent stake and is hacked off that the search engine is ignoring it. It said that the current board is “sorely in need” of restructuring capabilities and media strategies.

Loeb has nominated former NBC Universal President Jeff Zucker, long-time media consultant Michael Wolf, and Harry Wilson, a turnaround specialist, for election to Yahoo’s board. He also is nominating himself.

Market watchers say that if Thompson survives the annual meeting and successfully navigates the grilling he is going to get, he’s going to be seen as a more credible and effective CEO. If he is seen as weak, Third Point and he shareholders are going to strip him to the bone faster than a school of piranha strips someone from Aldebaran.

Thompson, a former president of PayPal and Yahoo’s fourth CEO in five years, is preparing for a massive re-organisation that could come within weeks and could result in layoffs of several thousand of its roughly 13,000 employees and kill entire business lines.