Starboard looking to break record in Yahoo fight

Starboard Value may have a better-than-average track record in its proxy fights, but there have been no conflicts in recent history in which activist investors have successfully replaced the full board of a company Yahoo's size.

The firm's full sweep of Darden Restaurants' board in 2014 was the biggest replacement on record in FactSet's SharkRepellent database, but Yahoo is five times larger than Darden. Starboard recently announced it was launching a proxy battle to replace Yahoo's entire board.

One way to measure the success of a proxy fight is to look at the percentage of clashes that end in the investor getting some or all of what it wants from the company.

If the proxy fight makes it to a vote (in Yahoo's case, that would be this summer), the dissident (in this case, Starboard) may win all or part of the vote. The proxy fight also could be split, with just a fraction of the director nominees elected or solicited votes approved. The effort may not even make it to a vote if the activists accept a formal settlement or concessions, which are also counted as a victory for the activist in the FactSet data.

Activists are winning more often in recent years, with nearly 80 percent of proxy fights ending in victory so far this year. That's up from less than half in the early 2000s, according to a look at the data over the past 15 years.

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The numbers suggest an activist like Starboard has a good shot of winning a given proxy fight. But that doesn't necessarily reflect the chances in this particular fight.

For one thing, Starboard has a better track record than average, but Yahoo is also much bigger than most of the companies that have been defeated, according to the data.

Of the approximately 1,400 completed proxy fights in the database, the average activist investor had about a 50-50 chance of winning. Starboard's success rate is much better — more than 70 percent.

That includes the firm's successful campaign to replace all 12 members of Darden Restaurants' board in 2014. Darden is the largest company Starboard has ever challenged, according to FactSet, but Yahoo is about five times bigger by market capitalization as measured by the time of the respective campaigns.

Looking at just the 18 proxy fights against companies that are at least Yahoo's size, the data suggest that those companies are more successful in fending off proxy attacks. The same is true for the 52 fights involving current S&P 500 companies.

Much of Starboard's success seems to come from winning settlements and concessions. But in this case, Starboard is seeking control of the company's board.

"We cannot envision a scenario where the shareholders of Yahoo would entrust the current management team and Board with executing a stand-alone turnaround plan given the years of failed attempts under the current leadership," Jeffrey C. Smith, managing member of Starboard, wrote in an open letter to Yahoo shareholders.

Another meaningful way to measure proxy fight success is how often a conflict leads to seats on the board. By this metric, dissidents are often less successful, securing only a portion of the seats they are seeking. Bigger companies seem especially effective at blocking board replacements.

According to the database, only about 30 out of more than 1,400 proxy fights have resulted in full board replacements. By far, Starboard's success with Darden's board was the biggest company with a full replacement on record.

Looking at the largest companies to be involved in proxy fights, it's clear that sweeping board changes are rare. There are no instances of all-out dissident wins in companies the size of Yahoo.

Most successful campaigns have involved concessions, not board seats. For example, Icahn Partners withdrew its 2006 proxy fight against Time Warner for board representation after the company agreed to implement a buyback program, cut costs and appoint independent directors.

Disney's 2011 fight ended with an agreement about executive compensation. EBay's 2014 clash was resolved with a PayPal spinoff plan and an independent director.

Based on the historical data, Starboard's effort to replace nine directors is one of the most audacious on record.

Starboard and Yahoo did not respond to requests for comment.