SAN FRANCISCO — Tensions between Yahoo and its most outspoken shareholder, the activist hedge fund Starboard Value, were already running high when the two sides agreed early this year on a face-to-face meeting in Manhattan.
But on the morning of that meeting on March 10, Yahoo surprised Starboard when it filled two vacancies on its board without consulting the hedge fund, in what many viewed as a poke in the eye.
For Starboard, the meeting was yet another bad omen. And on Thursday the hedge fund made good on its months-old threat to try to unseat the ailing web pioneer’s board.
In running nine candidates to try to oust all the incumbent directors, the hedge fund is seeking to claim its biggest corporate scalp yet. And Yahoo must defend itself while also trying to explore a potential sale of its core business.
The slate — which includes a former executive at NBCUniversal and a former technology banker at Deutsche Bank as well as Starboard’s chief executive, Jeffrey Smith — represents the strongest challenge to a board of a major American company in some time. Just 30 or so companies have experienced the ouster of their full boards as a result of activist campaigns, according to data from FactSet.
The most prominent victim in recent years was Darden Restaurants, the owner of Olive Garden, whose entire board was ousted by shareholders. Its tormentor: Starboard, which memorably accused the restaurant operator of insufficiently salting its pasta water and overserving breadsticks.
“As you know from reading our prior letters, we have been attempting to work with Yahoo for the past 18 months,” Mr. Smith wrote in a public letter to investors on Thursday. “Over this time frame, we have repeatedly requested an opportunity to work with the company, including offers to join the board and work constructively with the current directors. At every step of the way, management and the board have pushed us away.”
Yahoo said in a statement that it would review Starboard’s slate of director candidates. The board election will take place at Yahoo’s annual meeting, expected sometime in June or July.
Robert Peck, an analyst with SunTrust Robinson Humphrey, said that shareholder dissatisfaction with Yahoo was broad, and that Starboard “has a good chance of winning the proxy contest.”
Shares of Yahoo closed up slightly on Thursday, at $34.86.
It is unclear whether Starboard would ever have settled for less than majority control of Yahoo’s board. But people with knowledge of the hedge fund’s strategy, who spoke on the condition of anonymity, said that the firm had lost faith in Yahoo’s ability to find a turnaround strategy that would work and then doubted the company’s sincerity in exploring a sale of its mainstay web operations.
Eventually it came to the conclusion that wholesale change would be needed to ensure a sale.
Yahoo has argued that it is serious about potentially selling itself, pointing to the hiring of three investment banks and reaching out to a constellation of potential bidders, ranging from telecommunications giants like Verizon to media companies to private equity financiers.
But in its letter, Starboard, which owns a 1.7 percent stake in Yahoo, contends that there are reasons for shareholders to be “highly concerned” about the sale process. Some potential buyers have questioned whether the company is serious.