The faulty Times of London rumor over the weekend about a pending major Yahoo search deal with Microsoft was likely spawned in part by what appear to be correct reports that Jonathan Miller, former CEO of AOL, has been working to pull together at deal that would value Yahoo in the $20-$22 per share range and lead to a takeover of the company, presumably the deal would put Miller in a key role.
Miller’s interesting history as an AOL innovator and corporate rescue man who was fired after what many think were successful actions suggests to me that he’s eyeing Yahoo as a way to get back in the internet saddle in a major way. Yahoo’s internet footprint remains *larger than Google’s*, yet Yahoo’s legendarily inept monetization of this online traffic has let Google leave them in the revenue dust. As a company Yahoo is a lean shadow of its former self, but as an internet empire they are still doing just fine. One caveat is that Yahoo continues to lag Google big time in the most lucrative online activity of search. However, as one of a handful of global website empires that can shape user behavior simply by adjusting their offerings, advertising, and navigation elements Yahoo optimists like me continue to think that Yahoo’s problems can be fixed, leaving them in a position to double revenues in short order. They do not have to match Google’s revenues or monetization to be wildly successful – they just need to *do somewhat better than they do now*. I’m betting they can.
Disclosure: Long on Yahoo (in fact I just bought more today)
Yahoo and Microsoft haven’t been able to agree on very much over the last few months so it now appears fairly likely the battle will head into the shareholder meeting on August 1st.
Microsoft hasn’t lost many of these matches and the smart money remains on them to “win” this battle and take over Yahoo. My take is that there is now enough ego investment on all sides that you can expect Microsoft to be pretty ruthless in their efforts to replace the board and overhaul the company. Of course with with management leaving Yahoo at a record pace anyway, Microsoft is likely to inherit more of a management skeleton than a burden, and they are probably fine with this.
How poison will Yahoo make the pill? As a shareholder I’m concerned about this but comforted that the current board and Jerry Yang have a huge financial stake in this outcome. To Bostock and Yang’s huge credit they has been playing this game with their own money, though I’d argue they have not been playing it very well or with anybody’s best interests in mind (including their own). My take is that Yahoo simply could not readjust their expectations from the dramatic success story they enjoyed early on and the belief they could see that kind of success again. This gave them a perception of the current value of Yahoo that was completely out of line with the market perception, which by definition is the real value of a company. The $33 sale price has come from the desparate realization by Yahoo that they are going to lose the battle and possibly be forced to sell well below this price, though I think it’ll be in Microsoft’s interest to keep the tensions to a minimum and keep their new “post Yahoo merger” shareholders marginally happy with an offer above $30.
That said, Ballmer is clearly smelling the blood in the water and could probably force an eventual sale of Yahoo in mid to high twenties by jerking the strings for a few more months to soften up Icahn and other major shareholders who are clearly looking for something above the $31 offer Yahoo rejected a short time ago. Without Microsoft Yahoo’s share price would be well under $20 and this is now clear to everybody.
So the boxing match moves into the final rounds. It’s pretty much a corporate death match between Jerry “the Yahoo” Yang and Steve “the Basher” Ballmer. Although my money is invested with Jerry right now, I’d be betting on Ballmer to win this fight.
Microsoft’s very well played game to win Yahoo at a bargain price is wrapping up even more favorably than Microsoft planned. Yahoo refused the Icahn MS offer today to buy just pieces of the company, though in typical fashion Yahoo did not outline many details of their decision making process, rather they simply asserted it was a bad idea.
Obviously this was a strategic rather than serious move by MS as noted by Henry Blodget, though he’s wrong to think this is just a small play to soften up the Yahoo board before the proxy fight in August.
In fact this is the end game of a very smart plan by Ballmer / MS to aquire everything for less than they have been planning to pay for over a year. Yahoo’s intransigence has simply delayed the process by a few months and saved MS a few dollars per share on what they would have paid.
Over at Silicon Valley Insider we have Henry basically begging for an offer over $31 and indicating support for less.
Yahoo board is now *begging* MS for the $33 they could have had easily a few months ago but may not see again. MS can get it all for less so I’m now guessing the meeting offer will be $31 or $32. That will make MS look generous for keeping to the original plan in the face of a weakening Yahoo, and it will be acceptable to shareholders fearful of YHOO at $18 or lower if this all collapses.
Although this is likely to be resolved at or soon after the upcoming Yahoo board meeting it doesn’t have to resolve to work in MS’s favor. Yahoo’s pretty much exhausted all their options to the extent that it’s either Yahoo in the 30 range with Microsoft or Yahoo under 20 without MS.
Carl Icahn and Microsoft appear to be coordinating an attack on the current Yahoo board with today’s joint announcements by Icahn and a Microsoft stating they are ready to do a major deal with Yahoo. The animosity towards Microsoft is conspicuous given that one can reasonably argue (I would) that Microsoft remains pretty generous all things considered. They appear to comfortable with a share price in the same neighborhood of the $33 that Yahoo rejected months ago, despite the fact that shareholder discontent with Yahoo’s price and board combined with continued US economic concerns would arguably support a somewhat lower valuation.
I got a huge kick out of Kara Swisher’s disturbing picture of the corporate death match:
… another boost today with a classic wrestling double-body slam that Icahn and Microsoft CEO Steve Ballmer perpetrated on Yang today by unveiling their own dysfunctional love match–united in hatred of current Yahoo leadership.
I think however that Kara is very wrong to suggest that Icahn toppling the Yahoo board is “unlikely”. Most of the small shareholders do not have the vested interest in the company of a Yang or Filo and are likely to support Icahn. More importantly, I think that Yang has lost what appeared to be a sort of hypnotic impact on some of the existing board members and large shareholders and even if they are not stating this publicly I’m fairly confident they’ll be voting for Icahn in August. For small investors it is painful to turn away a 50%+ boost in share value – for big investors it could spell their eventual ruin. With billions at stake I think the predictive model here is fairly simple: Yahoo will be sold either in part or whole to Microsoft at a share price of about $34. I’ve been saying this for some time and see nothing to suggest it’s not going to happen in August- just a bit later than a rational market model would have suggested because egos and exaggerations, and the legendary Silicon Valley v. Microsoft animosity got in the way.
The Wall Street Journal has a great summary of the breakdown of the initial Yahoo Microsoft merger talks a few months ago, complete with something of a play by play in how corporate strategies on both sides …failed. My read is that the personal mix of Yang and Ballmer was probably all wrong for this, though I still think that part of Yang and Yahoo board’s idea was to play foolishly hard to get in an effort to either kill the deal or boost the price to an unreasonably high $37.
It’s now clear that strategy failed and I’m sticking to my prediction when all this began – Yahoo will be sold to Microsoft, who might work with other partners in the deal, for very close to $35 per share.
Microsoft and Yahoo are clearly back at the table and I think it is even clearer than before that a deal will be done. I’m compelled to say “I told you so” and I’m looking forward to looking up the many foolish stories written last month that suggested the deal was clearly over when it was obvious then and now that this is a deal that is very unlikely to die.
Yahoo’s plans for reorganizing their reorganization have now been announced. Kara seems to have the best scoops on this.
Meet the new boss Sue Decker, same as the old boss.
I am paraphrasing somewhat, but IMHO this is the gist of the Yahoo reorganization, sung to the tune of the Who’s: “Won’t Get Fooled Again”:
Yahoo’s fighting on the screen.
Over revenues unseen.
All the money that we worship will soon be gone.
And the Yang who spurred us on.
Sits in judgement – Ballmer’s wrong!
They decide and the board all sings the song.
I’ll tip my hat to Yahoo constitution
Take a bow for Yahoo revolution
Smile and grin at the change all around me
Open my laptop and play
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
[scream guest appearance by Carl Icahn: YAAAAAAAAAAAAAAAAHHHHH!]
One of the really intriguing aspects of the blogOspheric chatterfest is how the big markets tend to react to rumors from key business related blogs. When TechCrunch reported yesterday that talks between Microsoft and Yahoo had resumed Yahoo stock increased, only to fall after several other blogs reported the rumors as false or weak.
Although I have no reason to believe that Mike Arrington or Henry Blodget are trading options based on their market-moving blog reporting, I’m not at all clear it would be illegal for them to do so as long as they were reporting “real” rumors.
Henry answered at his blog that posting a false rumor to manipulate for investment purposes would likely be seen by SEC as a violation but this leaves a lot of gray areas open for an aggressive options trader/journalist.
Here’s what I just asked Mike Arrington over at TechCrunch: Mike just to set the record straight the ValleyWag poster “Mike Arrington”, who claims to have made 10k trading on Yahoo rumors, is fake … right?
More importantly I’m very interested in your views on legality/ethics of trading Yahoo options based on the rumor mill. Let’s say you heard a solid rumor that MS was about to offer $37 for Yahoo and Yahoo was going to sell. Could you legally trade on that before you posted it? One second after?
What if you emailed *me* right before you posted, I think I could legally trade based on current SEC rules, right?
P.S. What kind of Single Malt Scotch do you like? : )
Although I have no plans to manipulate any markets, it is reasonable to assume that if a market can be legally manipulated it *will be* manipulated, and soon.
Silicon Valley Insider appears to be manufacturing some news with their misquote of Microsoft Johnson as stating that if Yahoo fires Yang, Microsoft may bid again. It appears that Johnson did not say that or even anything approaching that in the interview, not to mention that Microsoft has stated that nothing has changed. Of *course* Microsoft will consider bidding again for Yahoo if circumstances change, but there is a big difference between that state of affairs and Microsoft openly starting to talk about that, which would be a sort of shot over Yahoo’s bow. That does not appear to have happened at all, though now Silicon Valley Insider has nabbed another few thousand in advertising impressions for promoting the bogus story.
I assume what’s going on here is the blogOsphere’s normal nonsense where even major blogs write attention grabbing, inaccurate headlines to get the advertising eyeballs, and then mold the facts to support the headline, usually with some miinor disclaimer that, if read between the lines, explains that the story is near -meaningless.
This trend in blogging is pretty interesting and one of the many reasons blogging is only slowly gaining the journalistic credibility it probably already deserves.
What did the normally very insightful Tim O’Reilly and Fred Wilson have for lunch, some free hallucinogenic deserts over at Google?
Both are criticizing Mike Arrington for stating the obvious – Yahoo’s not acting in the best interest of shareholders or Yahoo or anybody except Google, who clearly is the big winner in Yahoo’s squandered megadeal with Microsoft.
Fred very correctly notes that Yahoo’s has faced leadership challenges for a long time, but he says he likes the one option that keeps the current Yahoo board intact and very much on track for much more of the same company crushing behavior. Yes, a clean house is needed and that is certainly less likely to happen *now*.
It seems to me there are two issues and they have it wrong on both counts where Arrington’s got it right.
First, Yahoo’s Google move proved that in terms of shareholder obligations it should have sold to MS. Yahoo cannot reasonably make a case that they will come out of the monetization hole using core values while immediately outsourcing their most potentially lucrative biz to Google. Sure this will make more than Yahoo alone, but nothing like what the MS deal would have offered Yahoo in terms of ad cash plus money to develop the search biz. MS offered a shot at glory. Yahoo took Google’s money so they could keep sitting back and watching the really big search money pass them by.
Is Fred saying there is a Googley path back to $34+ per share? Even if yes, it is nonsense to think it’ll happen fast enough to justify turning down MS’s offer of $34 and their subsequent offer of $35 for 1 in 6 of Yahoo’s outstanding shares.
Second, this just gives Google even more of a near monopoly on monetization. As Mike suggests competiton is lacking and needed in the search space. This is a big step in the wrong direction.
The Yahoo Microsoft Merger saga continues as Yahoo and Google have signed an advertising pact in the face of mounting new pressure on Yahoo to sell to Microsoft. Carl Icahn, corporate mega-investor, has purchased a large stake in Yahoo and was preparing to force changes on the Yahoo board that have led to a Microsoft takeover. Today’s announcement appears to leave the Microsoft deal in the lurch, though I’m not clear yet why Icahn can’t fight a proxy battle to get control of the company and then back out of the agreement. Based on today’s news that is not part of his plan, though anything is possible in the rapid fire take no Microsoft prisoners battle where the Yahoo board appears more interested in thwarting Microsoft than doing good for Yahoo’s shareholders who today saw a drop of 10% in shares as another potential Microsoft deal crumbled. Last year Yahoo rejected $40 per share, and a few months back they rejected $34. One does not have to have much imagination to wonder how long it’ll be before they are rejecting $25.
An interesting investment question right now is whether Yahoo is priced low or high given all the new information. If, for example, a new board will come in within a year or so it’s very possible that MS will make another aquistion offer well above current prices. A new board would probably view this favorably. If true Yahoo’s a good buy now. However if the stubborness will continue for years it’s not at all clear that Yahoo can dig itself out of the profit and morale busting hole it’s been digging for several years while Google was eating Yahoo’s lunch and serving it back – free – to Google investors and employees.
Disclosure: I have Yahoo. Which means I have 90% of the value I had this morning.