Rabble-rousing investors are an increasingly familiar, if unwelcome, sight for the boards of Internet and media companies like Yahoo and CNET. But these activist shareholders may next set their sights on IT hardware companies, Bernstein analyst Toni Sacconaghi said in a research note today.

Sacconaghi specifically identified three companies — storage equipment maker EMC Corp, printer maker Lexmark and Sun Microsystems – as likeliest to capture the attention of activist shareholders, in that order. “These stocks are at or close to multi-year valuation lows… and offer distinct opportunities for value creation,” Sacconaghi wrote. But he also outlined risks in each case that could squeeze the potential pay-offs to investors.

An activist investor could pressure EMC to spin off virtualization star VMware, of which it owns about 85 percent, and pump some value back into its stock, Sacconaghi said. Of course, EMC’s chief financial officer told Reuters just last month the company has no intentions of doing so. If EMC changes its mind and sells off the stake, VMware’s own high-flying stock price might plummet, limiting any gain EMC’s stock price would get. 

In the case of Lexmark, an activist shareholder could seek value by urging the company to explore a sale or other “strategic alternative” for its licensing business. The investor could also push Lexmark to trim its operating expense or provide more clarity on its laser printer business, which Sacconaghi said the market is “increasingly anxious” about. But a key question is whether the inkjet printer business is separable from the rest of Lexmark, Sacconaghi said. Also, Lexmark recently announced a debt and share buyback program.

As for Sun, Sacconaghi said a dissident shareholder could push the company to undertake a major restructuring, although he acknowledged that there are few examples of activist shareholders proposing to improve a company’s operations. What’s more, giant buyout shop KKR has held a board seat in Sun for the past year, and Sacconaghi reasoned that there’s been no “discernible improvement” in Sun’s profitability despite KKR’s presence. That could mean there’s little else to be done to improve Sun’s operations.

Photo: Reuters

A story in The Wall Street Journal about Yahoo’s “reorganization” plans even as executives are leaving had us wondering which came first, the reorganization or the departures. The cynical might envision two scenarios:

Scenario 1: Yahoo begins hemorrhaging executives the week after it chooses Google over Microsoft. Investors, already mad at CEO Jerry Yang and the board for not cutting a deal with Microsoft, are likely to see the loss of top talent as a fallout. So Yahoo decides to do some damage control by “reorganizing” its various products, such as mail and messaging, into something more centralized, and indicate that as the reason for some six departures this week.

Scenario 2: After failing to strike a deal with Microsoft, and with investors less than thrilled at the Google partnership, Yahoo needs to do something to show the world it’s worth more than $47.5 billion. It dips into a fast-depleting bag of tricks and pulls out, wait, a “reorganization” plan we’ve sort of heard before. Executives shake their heads, worry that may not save the company and that they’re better off as venture capitalists (or maybe they’re considering job offers at Microsoft), and begin deserting.

So which came first, the chicken or the egg? Send us your thoughts.

(Photo: Reuters)

Now that Microsoft’s attempt to buy Yahoo seems to have failed, there’s a lot of speculation about Microsoft’s strategy.

Deal Journal speculates that Microsoft may be following a “no”-really-means-”maybe” strategy. “In the past, Oracle and PepsiCo backed away from takeover attempts, only to return to the negotiating table after their prey twisted in the wind,” Heidi Moore writes.

But here’s an even more evocative prey metaphor, from venture capitalist Todd Dagres of Spark Capital: “Microsoft is using the crocodile strategy- - rather than try to eat its prey while it’s warm and tough, it’s dragging it down to the bottom of the river, sticking it under a rock and eating it later when it’s cold and soft.”

Either way, is Yahoo eventually dead meat?

Photo: Reuters

We weren't expecting huge surprises during Yahoo's earnings conference call, but CEO Jerry Yang was spectacularly vague about the Internet company's plans vis-a-vis Microsoft or any other potential tie-ups -- with Google, Time Warner's AOL or News Corp -- that Yahoo has been working on.

At the very start of the call, Yang essentially said "Don't go there" to analysts and investors, reminding them about the purpose of the call.

"I'd like to remind you that today's call is about our Q1 results, so please direct your questions to the quarter if possible," Yang said.

When he touched on Microsoft -- referring to it as three months of "uncertainty" -- it was to reiterate the same line: "Our board and management are committed to choosing a path to maximize shareholder value."

At the same time, Yang was bent on convincing analysts and investors that, despite an unchanged revenue forecast for the year, Yahoo deserves a higher price than the $43 billion cash-and-stock deal that Microsoft has offered. Is that because Yahoo piggybacked on gains from a stake in China's Alibaba.com to a higher quarterly profit? Or because Yang said Yahoo's "strategies and investments are beginning to pay off"?

Not that analysts or investors were convinced. Most continue to believe that Yahoo's earnings are unlikely to put pressure on Microsoft on raise its bid.

Microsoft CEO Steve Ballmer, meanwhile, said before the earnings, "I wish Yahoo all the success with its results, but it doesn't affect the value of Yahoo to Microsoft."

So where does that leave Yahoo now? Wednesday might offer some clues, when Yahoo's two-week test on outsourcing search advertising to Google ends. Or it may not. Yahoo chairman Sue Decker already swatted hopes on the call, saying it's "premature" to speculate on what sort of deal the two might strike.

Photo: Yahoo CEO Jerry Yang (Reuters)

Are Silicon Valley’s best-known venture capitalists tired of funding startups?

Kleiner Perkins just announced a joint venture with another cleantech-focused VC and a Norwegian car company to sell electric cars in the U.S. market. It’s a 25-25-50 partnership, with each VC owning a 25 percent stake in the newly formed company.

And just a few days ago, Thomson Reuters’ pehub.com reported that Sequoia, arguably the Valley’s most illustrious VC, may raise a $750 million hedge fund.

That may partly explain why VC investments in startups fell 5 percent in the first quarter from the year-ago period. Where are the Googles and Amazons and Yahoos that set the pulse of many a VC racing, once upon a time?

Photo: The Think City, the first car the Kleiner JV will sell in the U.S.

There’s something about deadlines that sharpens the mind. Reporters know this and Yahoo is finding out with its decision to get into a Web search advertising test with arch-rival search firm Google Inc.

Yahoo is facing a three-week deadline to sit down with Microsoft, which has offered $42 billion to buy the company, and seems to be getting ever more creative in figuring out ways to resist the advances of its suitor to the North. The length of its limited test with Google? Two weeks.

Google, of course, isn’t about to object. “A long-term deal could be the only option that allows Yahoo to remain an independent company,” a person close to Google told us.

So why would Yahoo start hooking up with Google? Flaunting its flirtation with the enemy could put pressure on Microsoft to raise the bid. After all, if the test results show a spike in advertising revenue, that could mean Yahoo is worth more to a buyer if it starts outsourcing full time. That could lead to lightening Microsoft’s wallet more than the software giant had first anticipated.

But Yahoo plays a dangerous game. Microsoft said a deal between Yahoo and Microsoft could make the Web search market less competitive, just the kind of thing that leads to politicians calling for hearings. And as Microsoft knows, trips to Washington are never fun.

Grand Theft Auto publisher Take-Two, currently fending off a $2 billion hostile bid from Electronic Arts, filed an “8-K” last week, along with an attachment titled “Investor/Media Key Q&A for 14D9 Filing.” A Take-Two spokesman couldn’t tell us what the document was used for, but the format suggests it’s a list of potential questions executives could get asked by journalists, with answers they should stick to. Pretty helpful in these days of M&A warfare, especially when you consider the extra insight on offer — that Take-Two evidently forgot to delete — on what to say and how to say it.

Here’s Question No. 7, on expressions of interest Take-Two has received (including the part in brackets):

7. What other indications of interest has the company received? How serious have these indications been? Will you disclose other offers?

• We believe Take-Two is a unique and highly attractive asset.
• The Company has received indications of interest from third parties with respect to possible transactions since EA’s announcement and has continued to receive additional expressions of serious [are we going with “serious” - I don’t know the facts, but saw that serious was bracketed elsewhere] interest since our last filing.
• While no substantive discussions have yet occurred, we intend to actively pursue all strategic alternatives after April29th that may result in a better alternative to the EA Offer.

And here’s Question No. 21, on the date for the annual meeting (note the third bullet point):

21. What is the record date of the annual meeting this year? Is there a chance you will need to change the record date?

• February19, 2008.
• We do not intend to change the record date
• If you would like, you could also say something along the lines of “The record date was set in accordance with legal requirements. There is no need to change the record date.” Of course, this answer may change if the judge rules against us on April11.

And here’s a link to the entire filing: http://sec.gov/Archives/edgar/data/94658 1/000104746908003471/a2184226zex-99_2.ht m

Photo credit: Reuters

In the war of words between CNET and its biggest shareholder, a group led by hedge fund Jana Partners, the two sides might as well be speaking in different tongues.

Jana proclaims that its motives are driven by a desire to rescue CNET — best known for tech-news site News.com, which has been hit by stiff competition from blogs — from irrelevance.

CNET prefers to speak the language of corporate bylaws that it believes will protect the company from unwanted attention, despite a recent legal setback that it plans to appeal.

But Jana seems to have understood perfectly CNET chief Neil Ashe’s recent letter to employees, where he called the dissidents “opportunistic shareholders” and labeled the proxy fight a chess match. As blogger Michael Arrington — whose TechCrunch is a big thorn in CNET’s side, according to Dealbook — reported, Jana would rather get rid of Ashe.

The Delaware court ruled in favor of Jana Partners, allowing the hedge fund and its partners to nominate directors to CNET Networks’ board, come the next shareholder meeting.

But that decision is “just another move on the chess board,” according to CNET’s CEO Neil Ashe. In an e-mail to employees, Ashe compared fights between activist shareholders and managements for board control to chess matches.

“Remember, stockholder activism is more common place today,” Ashe wrote. “We are not alone. The New York Times and IAC are both addressing similar situations. As I’ve said since the beginning, this is like a chess match.”

The Times is fighting a proxy battle with hedge fund Harbinger Capital, and IAC and its controlling shareholder Liberty Media have sued each other.

CNET said it is reviewing the court’s decision and may appeal. We’re waiting for the next move.

 Photo: Reuters file

It’s hard to think of venture capitalists giving up their peaceful deal-gathering and startup-hunting activities to participate in the kind of rabble-rousing that is the hallmark of activist investors.

But two venture capitalists are playing prominent roles in two ongoing battles — one is a full-on proxy fight and the other is threatening to turn into one.

In January, a consortium led by hedge fund JANA Partners locked horns with CNET Networks to oust the online media company’s board and nominate its own candidates. The consortium’s nominees include Santo Politi, founder of the Boston-based VC firm Spark Capital. Politi is supposed to have been instrumental in spearheading the dissidents’ approach, according to Thomson Financial’s editor-at-large and PE Week Wire creator Dan Primack. A recent meeting between the two sides aimed at avoiding a proxy battle didn’t get anywhere, a source told Reuters.

Meanwhile, hedge fund Harbinger Capital Partners, which has amassed an impressive stake in the New York Times Co. in recent weeks, also began fighting in January, though the formal proxy was only filed last month. It too has a slate of nominees for election to the Times’ board, among them, Allen Morgan, a managing director at the storied Silicon Valley venture firm Mayfield Fund.

Morgan, a lawyer by training, has remained mostly quiet, except to emphasize his passive play in the activist game. “Because of my longstanding interest in, and experience with, Internet and new media companies, I was approached by a group of stockholders of the New York Times Company to see if I would agree to become a nominee… and I’ve agreed,” Morgan wrote on his blog, www.allensblog.typepad.com,on Jan. 29.

Photo credit: Reuters file