Yahoo JerryYahoo's (YHOO) embattled co-founder Jerry Yang is gone from the board, but for Third Point LLC, that's not good enough. The disgruntled Yahoo investor is aiming to take down company Chairman Roy Bostock and potentially three other directors. From Third Point's perspective, it's one down, one to go, and three more would be a bonus.

Let's look at how this fight may play out and who's likely to get beaten and bruised.

Fight! Fight!

Bostock has already received a tongue-lashing from Third Point, which holds a 5.2% stake in Yahoo. In November, Third Point called for Bostock and Yang to resign, citing conflicts of interest in the company's alleged pursuit of "sweetheart" deals with private-equity firms. These deals, Third Point alleged, would allow the current management and board to remain "entrenched" by selling only a slice of the company, rather than the entire operation at a higher premium.

Third Point wanted Yang and Bostock to turn their board seats over to two Third Point representatives. It's worth noting that Yahoo has yet to name a board replacement for Yang. It could be keeping the seat vacant should it strike a settlement with Third Point.

Yahoo may already realize that engaging in a fight to keep Bostock would be fruitless, given his lackluster support at the last annual shareholder meeting, when 20.1% of investors voted to kick Bostock out. That's nearing a dangerously high level, say proxy advisers.

"When you get to 30% of votes cast in opposition, that's typically high enough were you begin to see some response from the company to deal with the issue," said Patrick McGurn, executive director at Institutional Shareholder Services, which advises institutional investors on how to vote their proxy cards.

Since Yahoo's 2011 meeting, the stock has largely traded at the same level, and the company removed CEO Carol Bartz, who failed to grow revenues. Investors panned her recent replacement, PayPal executive Scott Thompson. What's more, Yahoo's strategic plan to enhance shareholder value via a sale of its Asian assets, though reportedly getting closer to fruition, has yet to materialize.

Who else is in Third Point's sights?

In its initial letter to Yahoo directors in September, Third Point said it also wanted to dump directors Art Kern, Vyomesh Joshi, and Susan James and present its own slate of replacements.

But unseating these three directors may prove more difficult than ousting Bostock. In the last shareholder meeting, Kern had only 5.2% of investors vote against his re-election to the board, while James was less at 4.9% and Joshi 4%, according to Yahoo's filing with the Securities and Exchange Commission.

"A lot of these fights settle out before it comes to a shareholder vote," McGurn says. "As the parties begin to see the early returns on the proxies, it creates a game of chicken."

Other proxy advisers agree: When a company and dissident shareholders name opposing slates of directors, the reaction in the stock market alone can set the tone for a potential settlement.

Yahoo has played this game before, reaching a settlement with major shareholder activists and billionaire investor Carl Icahn several years ago. Icahn went as far as to name a competing slate of Yahoo directors, after the existing board rejected the Microsoft (MSFT) buyout bid for $33 a share, claiming it didn't appropriately value the company. In the end, Icahn and the struggling Internet pioneer struck a deal whereby Icahn received a board seat and the right to appoint two directors.

The Chickens Come Home to Roost

Assuming Yahoo isn't sold before the company's next shareholder meeting, it wouldn't be surprising to see Third Point and Yahoo strike a deal for the hedge fund to gain representation on Yahoo's board. But if Third Point's board representatives don't get a seat at the table on any committee tasked with selling Yahoo or seeking ways to increase shareholder value, Third Point may soon lose interest in the company.

However, in dealing with PDL BioPharma in 2007, Third Point sought board representation and got it, according to research from FactSet Research Systems.

On 10-1-2007, the company announced in a press release that its board of directors had decided to actively seek a sale of the company as a whole or of its key assets. The company also announced that Mr. Mark McDade resigned as the company's CEO and director. ... Third Point applauded the board's decision to seek a sale of the company but was disappointment that the sales process was being led by a board that did not include one of its representatives. In light of the company's continuing refusal to give Third Point a board seat to oversee the sales process, it reduced its ownership stake to 5.1%.

On 11-9-2007, Third Point reported that it had sold its entire ownership stake and no longer had beneficial ownership of the company's shares.

Third Point a Short-Timer?

Suppose Third Point does win a Yahoo board seat and the company is still in the strategic review process and exploring its options. If Third Point got shut out of a prized strategic committee seat, that could be enough for it to walk away from its Yahoo stake.

On the other hand, none of this speculation matters if Yahoo moves forward and finds a buyer before the next shareholder meeting. Don't forget that Yang is still out there. He's no longer encumbered with having to live by a fiduciary duty to recuse himself as a Yahoo board member from any buyout discussions he may wish to participate in. And he has the benefit of historical knowledge of all the various options the company has entertained up until this past week.

It's not unreasonable, then, to think that Third Point may not be relevant to Yahoo and its investors down the road.

Motley Fool contributor Dawn Kawamoto owns no stock in the companies mentioned. The Motley Fool owns shares of Microsoft and Yahoo. Motley Fool newsletter services have recommended buying shares of Yahoo and Microsoft and creating a bull call spread position in Microsoft.



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