Yahoo agrees armed truce with activist investor hedge fund Starboard Value

• Fends-off impending bloody proxy war by acceding to hedge fund's demands for board seats
• Starboard value gets four seats on Yahoo's main board of directors
• Now in a position to influence events and vet bids to buy Yahoo's core business.
• Yahoo to pay $2m in chump change to reimburse Starboard's expenses in seeking to upend current board

Floundering social media company Yahoo has bowed to the inevitable and allocated four seats on the company board of directors to its harshest critic and would-be nemesis, the activist hedge fund Starboard Value. One of the seats goes to Starboard's CEO, Jeffrey Smith who says he intends to ensure that, going forward, Yahoo's board and business will be both credible and capable, something it obviously isn't at the moment. In addition Yahoo's board will be slimmed down to 11 members (four of whom have been nominated by Starboard Value) from the current 13.

In addition to Jeffery Smith, the three other other new board members who have strong affiliation to the aims and objectives of Starboard Value in regard to theb future of Yahoo are Tor Braham, the former chief of M&A at Deutsche Bank, Eddy Hartenstein, erstwhile CEO of the Tribune Publishing Company and Richard Hill, the chairman of Tessera Technologies.

As one of the conditions of the uneasy truce, two current Yahoo directors will step down at the company's upcoming early summer AGM. They are the former CEO of Wal-Mart, Lee Scott  together with Sue Young, a sometime partner in Ernst & Young.

Yahoo will also pay Starboard Value US$2 million in "reimbursement for legal fees incurred and other costs and expenses associated with" Starboard's efforts to remove Yahoo's board.

After ever increasing pressure from disaffected shareholders Yahoo finally moved, very, very late and with the greatest reluctance, to seeks bids to buy its core business after four years of denial and successive failed turnaround plans.

Only last month Starboard Value sent Yahoo investors a letter stating, "We have been extremely disappointed with Yahoo's dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability and oversight by the board." It would seem the missive missile hit the target and Yahoo was at last galvanised into putting its core business on the sales slab.

First round bids for that core business were submitted last week and it has emerged that Verizon Communications is the current front runner. However Verizon has stated that it will not pay the $10 billion plus that Yahoo wants and has indicated that its top offer will be in the  region of $8 billion. Meanwhile other bidders have publicly complained that despite putting itself up for sale Yahoo remains strangely reluctant to provide potential buyers with the financial and performance details necessary to permit proper due diligence and informed bidding.

Just one day after the deadline for the initial tranche of bids, Yahoo reported yet another set of feeble and declining quarterly figures. At that time Yahoo's embattled CEO, Melissa Mayer confirmed that the the bids would be assessed at the “fastest responsible pace”- whatever that might mean.

Yahoo has finally acted to change the structure and make-up of its board because Starboard Value had made it very plain that it would seek to replace the entire existing set of directors at the annual shareholders meeting if Yahoo didn't put itself up for sale.

And now, and with immediate effect, Starboard's CEO Smith will become a member of the "Strategic Review Committee" that is assessing the first set of bids, the quid pro quo being that Starboard has (at least for now) agreed to drop its demand for entire the board to be dismissed.

In a statement, Jeffrey Smith commented, “We look forward to getting started right away and working closely with management and our fellow board members with the common goal of maximising value for all shareholders.”

Melissa Mayer stayed uncharacteristically quiet silent when the news broke but Maynard Webb, the chairman of Yahoo, opined, “The additional board members will bring valuable experience and perspectives to Yahoo during this important time for our company." Well, he would say that, wouldn't he? He had no choice.