Yahoo, Inc. (NASDAQ: YHOO) is out with numbers and it appears that while there is a bit of growth, it's nothing to write home about. According to the Business Wire report: " Revenues were $1,798 million for the second quarter of 2008, a 6 percent increase compared to $1,698 million for the same period of 2007. "

Keep in mind that with the big shareholder meeting set for August 1st, don't you think the company would have done all they could to deliver a super earnings report? If this is the best that they can do, 6% revenue growth, then something is very wrong with management, and Carl Icahn is going to have a much easier job of trying to replace CEO Jerry Yang. With shares trading at about $20, they are going to have to do some fancy talking to show why rejecting a $31 to $33 per share offer from Microsoft Corporation (NASDAQ: MSFT) was actually good for shareholders.

The company keeps talking a good game and about future growth, but it comes down to just one principle for investors: Show us the money.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/22/08.

On the heels of the move by General Electric (NYSE: GE) Thursday to spin-off its consumer and industrial division, today we have news that Citigroup (NYSE: C) is selling its German retail banking business for $7.7 billion.

According to MarketWatch: "Citigroup said Friday that it's going to sell its German retail banking business to France's Credit Mutuel for 4.9 billion euros ($7.7 billion) in a deal that will strengthen its balance sheet and help it focus on faster-growing businesses."

This is a smart move for the company in order to clean up its balance sheet, but it's just a small step. If the company truly wanted to provide shareholder value, it could spin off the credit cards division, separate domestic and global consumer banking, spin off the capital markets division and so on. I admit that I haven't done all the work on this but my hunch is that if Citi would break up the company the combined parts would be valued significantly higher than where it is now trading.

While selling the division helps the balance sheet, unfortunately the impact for shareholders is muted. I would much rather see it follow the path of GE and give shareholders a share of this business and other businesses.

At least this sale is a start.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/11/08.

In a move that many investors have wanted, General Electric (NYSE: GE) just came out and said that it is mulling over the potential spin-off of its consumer and industrial division.

According to MarketWatch, "The conglomerate said shareholders will receive stakes in the new entity covering ts appliances, lighting and industrial units."

This is great news for investors and may be a precursor for other large conglomerates that have seen their stock prices stagnate for more than six years, to start spinning off divisions in order to unlock value for shareholders.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/10/08.

Yahoo's (NASDAQ: YHOO) embattled management and board have one month left to prove to shareholders that they made the right call in rejecting Microsoft's (NASDAQ:MSFT) bid. With shares trading at about $20, they are going to have to do some fancy footwork to show why rejecting a $31to $33 per share offer was actually good for shareholders.

Yahoo is trying to convince investors that a proposed 'search' deal with Google (NASDAQ:GOOG) will provide the growth needed to restore Yahoo to previous glory. According to an AP report: " By relying on Google's superior technology to show some of the ads alongside its search results, Yahoo believes it can increase its annual revenue by about $800 million and generate another $250 million to $450 million in annual cash flow."

Keep in mind that since the Microsoft deal fell apart, Yahoo has lost more than $16 billion in market cap. It is going to have to generate a lot more in revenues to show that they made the right choice.

My other problem is that I have many friends who over the last week have told me they can't access their Yahoo mail or open up their saved stock portfolio's on Yahoo Finance. I, personally, have been locked out for two days.

As was reported in AP online, "Members of the Rockefeller family are pressuring Exxon Mobil (NYSE: XOM) to focus more on renewable energy. The family members, who say they are the oil giant's longest continuous shareholders, say Exxon is too focused on short-term gains from sky-high oil prices. They also argue splitting the roles of chairman and CEO will help the company be more flexible in the future."

Last time I checked, companies had a responsibility to provide value for shareholders, and no one has done it better than the oil giant. It has been producing record earnings quarter after quarter, and that is exactly what it is supposed to do. Corporations are not supposed to be politically correct organizations that throw money around at the latest fad. Maybe Exxon doesn't believe that there is a global warming problem? Or maybe it wants to see a lot more scientific evidence of the problem before committing billions and billions of dollars to research. If I were a shareholder, I would want management to take the exact approach that it has been taking. The fact that it is the most profitable company in the world means something. It should be commended for providing shareholder value.

In fact, Bloomberg has an article that says that ocean cooling will stop global warming. Moreover, the article indeed mentions that the authors tried to spin the article because of Exxon. "We thought a lot about the way to present this because we don't want it to be turned around in the wrong way," Keenlyside said. "I hope it doesn't become a message of Exxon Mobil and other skeptics."

Sounds to me that they are right to be skeptical.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 5/1/08

News that financial services giant Citigroup (NYSE: C) is selling shares of common stock to raise capital is disturbing. According to a report in Bloomberg: "The company announced plans to sell $3 billion of stock to increase capital depleted by writedowns on subprime-related mortgages and bonds."

To dilute investors even more is just plain "Chutzpah." Shareholders over the last year or so have already lost more than 50% on their City shares; there has got to be a better way for the company to increase capital. Instead of diluting investors why not try and unlock some value for shareholders? It's not like the company has no assets. It could spin off the credit cards division, separate domestic and global consumer banking, spin off the capital markets division, and so on. It could generate a lot more than a measly $3 billion, and actually make shareholders happy!

Commenting on the move, as reported by Bloomberg, "Super Analyst" Meredith Whitney, who basically has been correct each step of the way as the banking crisis has worsened, said, "The fact that the company raised such a small amount of capital at this time confounds us. We believe Citi needs to raise an additional $10-$15 billion or sell several hundreds of billions worth of assets in order to truly shore up its capital position.''

It's time for Citi to be broken up, so that investors can finally reap some rewards.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/30/08

With investors everywhere trying to read the tea leaves and see what the future holds for Time Warner (NYSE: TWX), the seemingly innocuous comments made by Jeffrey Bewkes and Richard Parsons may provide the best clue as to how things will change when Bewkes takes over:

Parsons, who will stay as board chairman, said in a statement that Bewkes "will have my full support, and I am confident that Jeff will deliver a new era of growth for all of our company's important stakeholders."

Bewkes added: "We have a lot to do, and I'm intensely focused on building shareholder value."

(emphasis added)

The New York Times astutely observed today that the merger mania that is alive in the boardrooms of America may not be all good: "The term 'merger mania' may be more than a snappy description of the recent pace of corporate deal-making. It could be an astute diagnosis of a malady spreading through boardrooms and financial markets."

There's no really good reason for merger-mania. Historically, mergers and acquisitions very rarely create shareholder value, and tend to destroy it with alarming frequency. My cynical side believes that the compelling reasons for merger mania have little to do with creating shareholder value: Investment bankers push deals because they generate enormous fees, and corporate executives can reap huge rewards for consummating deals.

Then there's the other reason for deal-making, what Jim Cramer refers to as "two drunken sailors trying to hold each other up." This occurs when two companies that are struggling or in declining industries merge to try to stay afloat.

Peter Lynch is also no big fan of acquisitions, particularly when the target company isn't in the same line of business. He refers to this as "diworsification." Given the tendency for mergers to destroy rather than create value, I tend to sell when a company I hold shares in makes a large acquisition (particularly if the acquirer's shares surge).

In recent public remarks, U.S. Treasury Secretary Henry Paulson indicated that it was not the government's job to regulate executive compensation, but that he understood how reluctant investors are to reward failure. Secretary Paulson stated that executive compensation should be tied to performance, but he declined to state what specific performance factors should be considered. What exactly should corporate boards measure when linking executive pay to performance? Share price is a poor measure of management abilities since share price is subject to market forces completely beyond management control. Profits and EPS can both be easily manipulated. In a recent issue of CFO Magazine, Don Durfee examined the problems with performance-based pay packages.

Options for performance-based pay include a multi-year target for economic profit, or whether the company's stock hit a predetermined price per share, or whether specific cash-flow or shareholder return number are met. There is almost no end to possibilities for performance-based pay. Some companies reward executives with time-vesting restricted stock, now that all stock options must be expensed according to FASB 123R. But this type of restricted stock rewards executives merely for sticking around without getting fired, indicted or forced to resign.

According to Durfee, many companies are using total shareholder return, TSR, an external market factor, to measure executive performance. TSR of a company's stock is measured against a group of its peers. If that stock meets or exceeds TSR for the peer group, then executives earn additional compensation. But not every business operates the same way to create TSR. Return on invested capital is a good measurement in the manufacturing sector, but cash flow per share makes more sense in the financial services industry.

In a recent study of executive compensation, the companies directed by the 12 highest paid CEOs outperformed their market peers only one-third of the time in terms of shareholder value. So just what are the boards, and ultimately the investors, paying for?

Time Warner Inc. (NYSE:TWX) has set aside $145 million to settle a final securities fraud claims relating to the 2001 merger with AOL. This will mark roughly $3.75 billion it has paid out in AOL-related lawsuits from shareholders. The Wall Street Journal (subscription required) says that it exhausted a $3 billion reserve set aside in 2005 and $615 million more.

As a reminder, the company earlier this week reached a $144 million settlement with the state of Ohio as a six-state settlement after the Ohio Bureau of Workers Compensation and five state pension funds claimed they lost nearly $400 million as a result of the merger.

We noted the amount set aside in the 10-K (annual report) filing last month and the amounts that had not previously been disclosed. Here is what that was listed as then: According to the report, during the fourth quarter of 2006, the company established an additional reserve of $600 million, bringing the total reserve for unresolved claims to approximately $620 million as of Dec. 31, 2006. During February 2007, Time Warner reached agreements in principle to pay approximately $405 million to settle certain of the remaining claims. As of February 22, 2007, the remaining reserve of approximately $215 million reflects the company's best estimate, based on the many related securities litigation matters that it has resolved to date, of its financial exposure in the remaining lawsuits (which it plans to defend itself against).

I noted after the 10-K that "the worst" of the remaining suits was over, and hopefully this is the case. Six years later and the company is still having to pay for the merger. These settlements also bite into net earnings on a net-net basis for accounting purposes.

Investors will want to read Alfred Rappaport's article "10 Ways to Create Shareholder Value" in Harvard Business Review September 2006. Most companies profess to increase shareholder value, but do they actually do more than talk? Rappaport argues NO. Most corporate senior management focuses on short-term earnings and stock prices connected to the exercise of generous option grants. Both of these actions mitigate against creating shareholder value. Not surprisingly, Rappaport singles out Warren Buffett's Berkshire Hathaway (NYSE:BRKA) as one company that really does focus on increasing shareholder value. This is due to the fact that Mr. Buffett has long insisted on acting according to Rappaport's #1 Principle for increasing shareholder value: Do not manage for earnings. Management must develop strategic plans with the long-term goal of increasing shareholder value regardless of dips in short terms earnings. A company's acquisition strategy should proceed along those same lines.

Executive compensation, or rather excessive executive compensation, has been in the news of late. Think former NYSE head Dick Grasso and Home Depot CEO Bob Nardelli. Rappaport suggests that companies reward executives handsomely but only for long-term returns. This presupposes, however, that the executive suite does not have a revolving door and that a CEO is given long enough to implement strategic plans.

Share the wealth. Don't just reward the senior management team. A lot of middle and front-line managers work very hard in the trenches every day to create lasting shareholder value. If they don't do their jobs, the best strategic plans will come eventually to nought. Recognize and reward their efforts. Everybody benefits in the long run. Corporate boards should lay off granting options as though there is an infinite supply. Make senior management stand the same risk as all other shareholders by owning stock outright. That will help keep everybody focused on the same goal.