Jerry Yang, the Yahoo co-founder who took over as chief executive last year to try to restore the company to its onetime luster, said Monday he is stepping down after a turbulent year and a half running the storied Internet giant.
Yang, 40, told employees in a memo that he will continue as CEO until a replacement is found, then will go back to his old job as “Chief Yahoo.” He will remain on the board.
His tenure will be remembered most for Microsoft’s bid to buy the company, marked by frenzied negotiations, false starts, the arrival of activist investor Carl Icahn, and Yahoo’s rejection of a bid for $33 a share, angering some shareholders, especially as Yahoo’s stock slid in value; it closed Monday at $10.63.
In addition, the company reported three quarters of declining sales and announced a 10 percent staff cut, of 1,500 employees, in October.
To add to the drama, Icahn, who threatened to take over Yahoo’s board, eventually dropped his fight and joined the board. At one point Microsoft itself threatened to launch a hostile takeover but then let a deadline expire in May.
There was immediate speculation about whether Yang’s departure signals the possibility that a Microsoft deal may be revived. But Microsoft CEO Steve Ballmer has said he’s not interested in buying all of Yahoo.
Microsoft declined to comment on Monday’s development.
A source familiar with the Yahoo board’s thinking said the announcement of Yang’s resignation happened Monday because the board could no longer keep under wraps a search for his replacement.
“You can appreciate how hard it is to conduct a high-profile search confidentially,” the source said.
This person said the board has not yet brought in any candidates but will consider internal and external candidates, including Yahoo President Sue Decker.
The source said it was a mutual decision; Yang has been talking to the board about resigning and about finding a replacement “for some time,” said the source.
Analysts expect an outsider to be brought in.
“The next hire has to be a statement; it can’t be from inside the company,” said Rick Munarriz, an analyst with the Motley Fool. “You don’t need a Yahoo again. The first thing they should do with the new CEO is cut him open and if he bleeds purple they kick him out.”
With Google the overwhelmingly dominant Internet search engine, Microsoft could still benefit by joining forces with Yahoo in some way. Microsoft at one point floated several proposals around buying the Sunnyvale company’s search business.
Jeffrey Lindsay, an analyst with Sanford Bernstein, said he expected Yahoo to try to sell itself to Microsoft, saying that Ballmer had indicated he had no appetite for negotiating with the current management team.
He thought Jon Miller, former chief executive of AOL, was the most likely candidate to replace Yang.
Yahoo, which became an Internet powerhouse almost overnight from its founding in 1994, was created by David Filo and Yang, who as Stanford graduate students developed a new way of searching the Web.
It grew rapidly and, after a brief stint as CEO, Yang stepped aside to become “Chief Yahoo,” an advocate for the company and a source of creative thinking.
But in the past few years, Yahoo has stumbled and been overshadowed by its newer rival Google. But in fending off the Microsoft takeover attempt, it tried to forge a new search deal with Google. That deal fell apart earlier this month after the U.S. Department of Justice said it would file a lawsuit to stop the deal.
Yang, who briefly served as CEO early in the company’s history, returned to that job in June 2007 when Terry Semel resigned.
Yang had been at the helm a scant seven months when Microsoft announced its $44 billion offer for the company at the beginning of February. The offer set off a mad scramble at Yahoo to avoid what, to many shareholders, looked like a pretty good deal.
Yahoo rejected the offer two weeks later. Negotiations continued, however, ultimately reaching an impasse after Yang and Filo flew to Redmond, Wash., to negotiate personally with Ballmer.
Google, meanwhile, raised objections to the combination of the two companies, saying it raised troubling antitrust questions. At the same time, there was speculation that Google might ride to Yahoo’s rescue with a business deal for Yahoo to outsource its search advertising to Google.
The Google deal was kept alive throughout the off-again, on-again negotiations with Microsoft, and only died 12 days ago.
Earlier, Yahoo fished around for another partner. Among those mentioned were AOL and Rupert Murdoch’s News Corp., but nothing came of that.
In July, Microsoft officially ended its bid to buy Yahoo. “It didn’t work out,” Ballmer told analysts.
Yang’s rejection of Microsoft angered many major investors, and at the company’s August annual meeting, more than a third of its shareholders expressed their opposition to Yang and Board Chairman Roy Bostock. Thirty-four percent withheld their support from Yang.
Yahoo is left with a depressed stock price in a challenging advertising market, with Microsoft in a position to drive a tough bargain.
Nevertheless, Yang said in his memo that Yahoo was a much stronger company than it was when he took over.
“I have always sought to do what is best for our franchise,” Yang said in a statement. “When the Board asked me to become CEO and lead the transformation of the Company, I did so because it was important to re-envision the business for a different era to drive more effective growth. Having set Yahoo! on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader.”
“Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open platform model as well as the improved alignment of costs and revenues,” added Bostock, the board chairman.
“I will continue to focus on global strategy and to do everything I can to help Yahoo! realize its full potential and enhance its leading culture of technology and product excellence and innovation,” Yang said.
Contact Pete Carey at pcarey@mercurynews.com.
