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December 11, 2015

The Board of Directors


Yahoo! Inc.
701 First Avenue
Sunnyvale, California 94089
Attention: Maynard J. Webb, Chairman
cc:

Marissa A. Mayer, President and Chief Executive Officer


Kenneth A. Goldman, Chief Financial Officer

Ladies and Gentlemen:


Canyon Capital Advisors LLC is an investment management firm that serves as investment
adviser to funds and accounts having, on an aggregate basis, economic ownership of
approximately 10 million shares in Yahoo! Inc. (the Company), representing approximately
1.1% of shares outstanding.
On December 3, 2015, we submitted a letter to the Companys Board of Directors as they met to
discuss whether to complete the spin-off of the Companys holdings in Alibaba Holding Group
Ltd. (Alibaba), or to change course and pursue a sale of the Companys core business. Our
primary reason for submitting our prior letter was our concern that the Board would fail to
emerge from these meetings with a clear path forward for the Company. In particular, we
expressed our strong view that time was of the essence, and an immediate sale of the entire
company, as well as its individual assets, should be explored. This concern was heightened due
to a lack of communication with shareholders and a general perception, as widely reported in the
media, that the Board lacked real independence from the Companys senior management.
In our prior letter, we specifically asked that the Board: (i) produce a decisive strategy to
monetize the Companys investments and core business as soon as possible, while protecting the
cash currently on its balance sheet; (ii) demonstrate that this strategy was considered and
separately recommended by a sub-set of truly independent directors based on the advice of
qualified financial and legal advisors; and (iii) significantly increase its transparency, both to
shareholders and to the market generally. We received no response from the Company or the
Board to our letter (other than to confirm receipt).
Unfortunately, our concerns were well-founded. The Companys recent announcement to
abandon its plan to spin-off its holdings in Alibaba and to begin evaluating a spin-off of the core
business, its substantial cash, and its Yahoo! Japan stake did not include any clear details in
2000 Avenue of the Stars, 11th Floor
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terms of analysis, process or timing. In fact, following the explanatory call hosted by the
Companys Chairman and Chief Executive Officer, shareholders were told to expect at least
another year of exploring the uncertain spin, while management continues its unsuccessful quest
to turn around the core business rather than taking decisive action to immediately unlock value.
The market already assigns significant negative value to the Companys mature core operating
business and assets and, in our view, this delay will inevitably cause further decline in value. We
do not understand the Boards continued support of the Companys senior management team,
given its track record, its failure to increase value for shareholders and the recent spate of
executive departures from the Company.
A Reverse-Spin Should Not Be the Only Option. The new reverse-spin would be, by the
Companys own admission, fraught with operational, tax and execution risks similar to those that
ultimately caused it to abandon the Alibaba spin. Therefore, the Company must launch other
plans simultaneously to maximize value for its owners. We believe there are a number of
potential buyers for the various assets comprising the Companys core business, its real estate,
intellectual property and royalty streams, as well as its Yahoo! Japan stake. We also believe that
a sale of the entire company should be considered.
The Companys primary goal must be to close the discount on the Companys non-core assets as
much as possible and in a timely manner. Tightening the market discount on the Alibaba stake,
the Yahoo! Japan stake, and the Companys cash by 20% could immediately generate nearly $10
per share of value, or an approximately 30% return, on top of any value the core assets generate
through a sale process. The modest scale of the core business relative to the total enterprise
value of the Company today means that even material improvements in its valuation would be
insignificant in comparison to tightening these discounts.
One Year is Too Long to Wait. The Companys inaction to date has been startling. After
contemplating a spin-off of Alibaba for nearly a year, and evaluating tax-efficient options for
both its Alibaba and Yahoo! Japan stakes for nearly five years, the Company has not
consummated (or even determined) a final plan. We find it difficult to comprehend that in the
face of months of tax uncertainty regarding the spin-off there was apparently no plan B.
Requiring shareholders to continue to wait for definitive action for another year or more and
extending the tenure of senior management while the Company evaluates this reverse-spin is
simply unacceptable. This plan should already have been well-vetted and evaluated, given that
nearly five years of discussions about separating the investment stakes has already passed.
We are surprised the Company continues to claim it can use this time to improve the value of its
aging core business. The midpoint of managements recent guidance implies a full year 2015
revenue (ex-TAC) decline of 8.5% and an adjusted EBITDA decline of 32.7%. By comparison,
in 2014, revenue (ex-TAC) declined 0.6% and adjusted EBITDA declined 12.9%. Furthermore,
the $2.3 billion of acquisitions and other investments have failed to create shareholder value.
We believe the current perceived market value of the Companys core operations and assets is
well below zero.

Immediate Action is Required. In light of the above, we believe the Company should prioritize a
sale of its core business, a portion of its assets, or the entire company. We ask that the Board
exercise its duty to act in the best interests of shareholders by quickly unlocking the value of the
Companys assets while protecting its current cash holdings. We believe the most responsible
way to do so is not through the pursuit of another uncertain and protracted spin but rather
through the immediate launch of a sale process.
Respectfully,

Canyon Capital Advisors LLC

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