Yahoo's fate riding on Yang's successor as CEO

With Jerry Yang quitting as Yahoo Inc.'s chief executive, the internet company's board will confront pivotal questions as it looks for a new leader.

Should Yahoo swallow its pride and try to strike a buyout deal with Microsoft Corp. at a price far below Microsoft's $47.5 billion US offer from6months ago? Or should Yahoo still pursue a long-awaited turnaround that's becoming more difficult to achieve as the economy tanks?

If Yahoo plays it safe and hires someone from within or someone friendly with Microsoft, it could signal the board merely wants an interim captain who can steer the ship until Microsoft, or possibly another buyer, comes to the rescue.

But should Yahoo recruit a CEO with a prestigious resume or pluck an up-and-coming technology star, it will be seen as a sign that the company is digging in to remain independent for the long haul.

Microsoft acquisition talks loom

"It's time for Yahoo to decide if they are going to keep entertaining offers or really start to focus on a business strategy," said Mike Leo, a veteran online ad executive who now runs Operative Inc. "Yahoo still has some great assets. They have just been mismanaged."

'Yahoo is like a wounded animal right now. They need an Obama-like leader.' Todd Dagres, Spark Capital founder

Most analysts and investors have interpreted Yang's departure as precursor to Microsoft's acquisition of Yahoo in its entirety or at least its search engine, which ranks a distant second in usage behind Google Inc.'s.

Yahoo shares gained 92 cents US, or more thaneight per cent, to close Tuesday at $11.55 US.

That's a fraction of the $33 US per share that Microsoft offered in early May before Yang's request for more money prompted the Redmond, Wash.-based software maker to withdraw its bid.

The negotiating breakdown infuriated shareholders and their fury intensified as Yahoo's stock plunged to its lowest levels since early 2003.

Yang, Yahoo's co-founder, clung to the hope that he could still engineer a comeback, but his plans went awry yet again this month when Google backed out of a proposed ad partnership to avoid an antitrust battle with the federal government.

The loss of Google's help, which was supposed to boost Yahoo's sagging profits, evidently prompted Yang and Yahoo's board to conclude they needed to announce a change in command even before a successor had been found. Yang, 40, will remain CEO until his replacement is hired and then revert to his former advisory role of "Chief Yahoo."

Yahoo so far has given few clues on the leadership skills it's seeking, saying only that it wants a CEO "who can take the company to the next level." The company has hired Heidrick & Struggles, a headhunting firm, to recruit its next CEO.

Although Yahoo's profits and stock price have been crumbling for nearly three years, analysts say the company's huge audience of about 500 million Internet users and leadership positions in e-mail and news could still attract a big-name executive. "Yahoo can still be salvaged," said Forrester Research analyst David Card.

Yahoo mulls potential successors

The names of possible successors include obvious ones like Yahoo's current president and Yang confidant, Susan Decker, as well as its former chief operating officer, Dan Rosensweig, who left last year after a management shake-up diminished his authority.

Other candidates offer more intrigue, like former eBay Inc. CEO Meg Whitman or media mogul Rupert Murdoch's top lieutenant at News Corp., Peter Chernin, who just so happens to be getting ready to negotiate another contract.

Whitman appears to be a long shot because she has indicated she's more interested in pursuing a political career than returning to the executive suite.

Jonathan Miller, the former CEO of AOL, has been mentioned as another possibility. But when he left AOL in 2006, his severance agreement included a noncompete clause that prevents him from working from rivals like Yahoo until March 2009. Time Warner Inc., AOL's corporate parent, enforced the provision to block Miller from joining Yahoo's board last summer.

Gartner Inc. analyst Allen Weiner believes Yahoo should recruit a turnaround specialist or a "young Turk" in the mold of Jason Kilar, who was lured from Amazon.com Inc. last year to run the online video site Hulu.com. If Yahoo takes that kind of a step, Weiner said the deep pools of talent at Silicon Valley neighbors Google and Apple Inc. might yield a savvy new leader.

Other names being bandied about include the former head of Microsoft's online operation, Kevin Johnson, who helped persuade the software maker to bid for Yahoo. Johnson left Microsoft during the summer to become CEO of computer gear maker Juniper Networks Inc., which is located a half-mile from Yahoo's headquarters in Sunnyvale, Calif.

Whoever Yahoo selects needs to have charisma and vision if the company is to have any hope of bouncing back, said Todd Dagres, founder of the venture capital firm Spark Capital. "Yahoo is like a wounded animal right now. They need an Obama-like leader," he said.

Microsoft might make a move on Yahoo before the board even has a chance to hire a new CEO, Jefferies & Co. analyst Youssef Squali suggests. He estimates Microsoft could buy Yahoo in its entirety for $20.50 to $22 per share or perhaps just snap up Yahoo's search operations for $8 per share.

Microsoft declined to comment Tuesday on its interest in Yahoo.