UPDATE 2-Investor wants Yahoo CFO or media boss as temp CEO

Wed May 9, 2012 5:15pm EDT

By Alexei Oreskovic

SAN FRANCISCO May 9 (Reuters) - Yahoo Inc's largest outside shareholder said the Internet company should make its finance chief or head of media the interim chief executive because of the controversy surrounding CEO Scott Thompson's educational background.

Third Point, an activist hedge fund waging a bitter proxy battle against Yahoo's board and which exposed inaccuracies in Thompson's official biography last week, repeated its demand on Wednesday that Yahoo fire Thompson and install four of its hand-picked director candidates to the board.

Yahoo's board appointed a special committee to investigate Thompson's background on Tuesday and review the "facts and circumstances" surrounding the hiring of Thompson.

Yahoo acknowledged last week that Thompson, the former president of eBay division PayPal, does not have a computer science degree despite what was stated in his official company biography and in regulatory filings with the U.S. Securities and Exchange Commission.

Ebay Inc CEO John Donahoe came to Thompson's support on Wednesday, telling reporters at an event in Tokyo that he hoped Thompson would "get through this," and that he was "Scott's biggest fan," according to a report in Bloomberg News.

Donahoe said that eBay's regulatory filings when the company hired Thompson were accurate.

The controversy has engulfed Yahoo in turmoil, raising questions about the future of Yahoo's fourth CEO in five years and the latest plan to revive the company's flagging revenue growth.

In its first-quarter 10-Q filing with the SEC on Wednesday, Yahoo acknowledged that "uncertainties" about Thompson and questions about the company's "future direction" could hurt business opportunities and make it difficult to attract employees and business partners.

Yahoo fired its previous CEO Carol Bartz in September. And the company has undergone multiple rounds of layoffs and reorganizations in the last few years, including a plan to slash 14 percent of the workforce which Thompson announced in April.

Thompson sent an email to Yahoo's employees on Monday apologizing for the fallout from the controversy and noting that he hoped the board's review would be concluded promptly. But he has not publicly addressed the discrepancy in his educational background.

Third Point CEO Dan Loeb said in a letter to Yahoo's board on Wednesday that Thompson's apology was "insufficient," and he chided Yahoo's board for not taking any "decisive action" in the six days since the discrepancy in Thompson's educational background was revealed.

"It seems farcical to us that the Board will most likely spend more time deliberating over whether Mr. Thompson should be fired than it did properly vetting whether he should have been hired," Loeb wrote.

He recommended that Yahoo appoint Chief Financial Officer Tim Morse or Ross Levinsohn, Yahoo's head of global media, to the role of interim CEO, while one of Third Point's director candidates be tasked with heading a search committee to find a new permanent CEO.

Yahoo director Patti Hart, who led the search committee that hired Thompson in January, announced that she would not seek re-election to Yahoo's board on Tuesday, noting that she needed to focus on her primary responsibilities as CEO of International Game Technology.

Shares of Yahoo closed 6 cents lower at $15.30 on Nasdaq.

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