As Yahoo Cuts Jobs, Proxy Battle, Facebook Patent War Heat Up

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Struggling Internet giant Yahoo announced 2,000 layoffs Wednesday as it mapped out its latest plan to reverse a years-long slump that has seen the web pioneer become eclipsed by younger rivals. But new CEO Scott Thompson faces several daunting challenges, including a proxy fight with a powerful hudge fund investor and an escalating patent war with social networking juggernaut Facebook.

The latest layoffs represent about 14% of Yahoo’s workforce, and will save the company some $375 million annually moving forward. In a memo to employees, Thompson said the changes will allow the company to become “a smaller, nimbler, more profitable Yahoo! better equipped to innovate as fast as our customers and our industry require.”

Thompson said the latest re-organization would focus attention on leveraging the “massive data sets” of information about the vast pool of users that make Yahoo one of the top properties on the web. “We have to unlock the value in our data to allow us to really understand our 700 million users, encourage and win their engagement and trust, leverage everything they do with us to more fully personalize their experiences, and to give our advertisers the immediate insights they are rightfully demanding,” he wrote.

Thompson, who become CEO in January 2012, faces a number of challenges, most notably a governance fight being waged by activist investor Dan Loeb, who runs a hedge fund called Third Point Capital, which has invested over $1 billion to acquire a 5.5% stake in Yahoo. Loeb has proposed a slate of new board members, including himself, former NBC Universal CEO Jeff Zucker; former MTV Networks president Michael Wolf and turnaround expert Harry Wilson.

(More: Yahoo Sues Facebook in Patent Shakedown)

Yahoo has said it’s willing to consider Wilson, but not the other proposed candidates, setting up an expected power struggle at the company’s annual meeting this summer. In anticipation of the fight, Loeb has set up a website to advocate for his agenda, ValueYahoo.com.

“In the absence of independent shareholder leadership, Yahoo has repeatedly failed to execute a consistent operating plan or realize favorable strategic outcomes,” Loeb and the other proposed board members wrote on the site. “During the past five years, these management and governance missteps have gone unchallenged, leaving shareholders with unfulfilled promises from a revolving door of five CEOs and the Board members charged with overseeing them.”

Yahoo CEO Thompson also faces an escalating intellectual property dispute with Facebook, which was prompted by the web giant’s recent demand that Facebook pay it licensing fees to cover social networking technology patents — or else face a potentially costly legal dispute. On Tuesday, Facebook filed a countersuit against Yahoo, saying it did so “in response to Yahoo’s short-sighted decision to attack one of its partners and prioritize litigation over innovation.”

In recent years, Yahoo has experienced a long, painful slide as it’s been eclipsed by one-time rival Google as well as social media upstarts like Facebook and Twitter. Last September, Carol Bartz was fired as CEO and in January, co-founder Jerry Yang left the company. Thompson is also faced with finding an exit for the company’s valuable Asian assets, including a large stake in Chinese e-commerce giant Alibaba, which are worth an estimated $20 billion.

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