Yahoo's Carol Bartz in happier times

Journalists often have to deal in rumors, speculation and unattributed tips. But the best kind of gossip is on the record and holds nothing back. With the fallout at Yahoo, we have plenty of both. The fate of one of the web’s largest media companies and original prime properties is still being decided, perhaps not in internet time.

“These people f—ed me over,” Yahoo’s just-deposed-CEO Carol Bartz told Fortune’s Patricia Sellers.

According to Bartz, Yahoo chairman Roy Bostock fired her by reading a statement prepared by a lawyer over the telephone. “Roy, I think that’s a script,” Bartz said. “Why don’t you have the balls to tell me yourself?”

Bartz places the blame for Yahoo’s troubles squarely on Bostock and the board, arguing that their insecurity created expectations that couldn’t be fulfilled: “They want revenue growth, even though they were told that we would not have revenue growth until 2012.”

“The board was so spooked by being cast as the worst board in the country,” Bartz added. “Now they’re trying to show that they’re not the doofuses that they are.”

According to Sellers’ sources, Bartz’s contract included a non-disparagement clause. These sources told Sellers that Bartz’s use of the word “doofuses” to describe the board may have violated that clause. If true, that could cost Bartz as much as $10 million in outstanding compensation. Bartz herself remains a director of Yahoo’s board.

It’s not as if the board would be united even if Bartz weren’t still hanging around. Co-founder and ex-CEO Jerry Yang is reportedly trying to buy Yahoo himself. Business Insider’s sources say Yang and co-founder David Filo are feuding with Bostock for control of the company. Meanwhile, the Wall Street Journal’s Martin Peers says it’s time for Yang to leave Yahoo too.

Another investor thinks it’s time for Yahoo’s board to start over. Daniel Loeb, CEO of the hedge fund Third Point Management, wrote an open letter announcing his company’s acquisition of a 5.1% interest in Yahoo, blasting the board’s decision to hire Bartz in the first place and calling on Bostock and directors Arthur Kern, Vyomesh Joshi and Susan James to resign.

“From the failed Microsoft sale negotiations, to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections, and most recently the Alipay debacle, this Board’s failures have destroyed value for all Yahoo stakeholders,” Loeb writes.

Loeb also says Third Point has had discussions with “an All-Star team of potential Director candidates” from tech, media and consumer businesses that he’s willing to propose as an alternate slate for Yahoo’s board. He calls Yahoo “grossly undervalued,” largely because Yahoo’s recent leadership failed to capitalize on unrealized assets in domestic portal advertising and its Asian businesses. Loeb proposes developing Yahoo’s stake in Alibaba, partnership with Softbank and the strong position of Yahoo Japan. (This aligns almost exactly with our short look at Yahoo’s unrealized assets earlier in the week.)

However, Loeb thinks the bulk of Yahoo’s current leadership can’t be trusted to turn the company around. They also need to bear responsibility for failing the company and its shareholders so far:

Yahoo’s website states the Company’s values, among them: “We foster collaboration while maintaining individual accountability.” It is time that certain members of this Board were held accountable for its past failures and their individual roles.

CNBC calls the Yahoo letter “classic Dan Loeb.” He has a reputation for writing frank and colorful open letters about companies in which he invests, if not quite so off-color as Bartz.

But Loeb also has a reputation for getting results: a New YorkMagazine profile said his fund has returned over 25% annually to investors, in part due to his process:

Loeb is well known in Hedgeworld for his attacks on what he views as greedy execs who also happen to be depressing shareholder value. Of shares he owns. “The moral-indignation business,” Loeb sometimes calls it.

Hedge-fund guys love to read Loeb’s attacks—“he articulates what people feel,” says one. Usually, the letters accompany Loeb’s government filings. If you buy 5 percent of a public company, you must file with the SEC; Loeb once increased his holdings, at a cost of more than $4 million, just so he could file a letter.

With Yahoo, Loeb followed that formula to the letter; his fund now owns 5.1% of the company, more than Jerry Yang now or Carl Icahn when he launched his attempt to remake Yahoo three years ago. So it isn’t as if Loeb can be ignored.

Yahoo’s stock price jumped 6% after Third Point’s SEC disclosure and letter. If Third Point bought all of its Yahoo shares at $13.5 (roughly where they were before the letter) and sold them at $14.5 (roughly where they closed yesterday), he’d walk away with $65 million. Not a bad return for trading a little gossip.

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