Yahoo’s Don Quixote


The Yahoo Microsoft fiasco saga continues as Jerry Yang, in today’s interview with Kara Swisher, seemed to suggest he’d basically go down with the ship.   Or perhaps more accurately he’s willing to take the ship down with him in what appears closer and closer to a Quixotic vision of what to do about Microsoft.   Yang seems to suggest two incompatible things – first that Microsoft has not given a clear offer to Yahoo and second that:

“Their motivations are suspect and there is simply no good reason to think they will actually show up at the end of the day.”

Huh?   MS is clearly prepared to buy Yahoo.   This is obvious to everybody including Jerry.   He could argue that they are going to screw up Yahoo after buying it, but that rings a bit hollow given the sad conditions of the company right now.     In fact it’s hard to imagine how Yahoo, a key brand in the key global sector, can be doing so poorly right now.   How in the world could Microsoft screw the company up more than Yahoo is screwed up right now?

Even if Microsoft *is* going to bring devastating changes to Yahoo, there is a shareholder obligation here that probably is not met without a sale to Microsoft.     It is simply no longer viable to suggest that an independent Yahoo is likely to show the revenues required to bring the stock to 33+ within a year.    Without any Microsoft interest  YHOO would be trading at about $18, so the likely Icahnesque MS offer can arguably be viewed as a premium of close to 100% on what shareholders can expect if this deal *really* crumbles, which is what Yang clearly wants to happen.

I agree with Swisher:

… even with all the noise, it should be entirely clear by now that Microsoft and Yahoo need each other.

Disclosure:  Long on YHOO

Showdown at the Yahoo Corral Coming August 1


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.

In this corporate showdown at the Yahoo Corral  I think Jerry Yang and David Filo have drawn the unfortunate roles of Billy Clanton and Frank McLaury

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.

Disclosure: I’m Long on Yahoo

Yahoo Employee on Yahoo Reorganization


I’m posting this as vindication of my sarcastic view of the Yahoo reorganization plans.    It’s an email sent to Fortune magazine from a Yahoo employee who sarcastically addresses Yahoo’s challenges of the past year – from the Peanut butter memo to the Microsoft merger mania.

Interestingly, soon-to-be-ex-Yahoo  Jeremy Zawodny link was how I found this.

Yahoo Announces Reorganization Plan which is sung to the tune of the Who’s “Won’t Get Fooled Again”


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!]

Disclosure: Long on YHOO.

Buy before the rumor, sell before the news?


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. 

Carl Icahn: Blogger


There’s a new guy in blog town and he’s shooting from the hip about the defects of the corporate governance models we’ve all come to know and hate over the past decades. His name is Carl Icahn and his blog offers great insight into the mind of one of the most successful corporate raiders in history.

Although it is obviously favorable to Icahn’s bottom line to maintain how incompetent boards are leading to the decline of western economic civilization as we know it, I’m hardly going to disagree with the notion that corporate governance, especially in the technology sector, often seems out of whack with shareholder interests.

It is important not to confuse Icahn’s critiques with the whacky ones of many who suggest the corporation itself is a bad model and should be replaced by outmoded socialistic and centralized approaches that brought economic ruin on an entire generation of eastern Europeans and helped bring genocidal regimes into power in asia.    On the contrary Icahn’s point is more that we need to make sure the corporation model can thrive by insisting on better governance for struggling companies.

In the case of Yahoo, Biz Doctor Icahn’s prescription is to buy up a huge share, then throw the corporate board bums out and sell the company to Microsoft.  The stakes here are so high for Icahn (he could see over a billion in profit if his plan works), that he’s hardly in a position to entertain alternatives that might be better for Yahoo, but I think most shareholders already are rooting him on in the hopes of salvaging the $11+ per share lost when Microsoft withdrew from the bidding for Yahoo last month.

Disclosure:  Long on YHOO

Why O’Reilly’s wrong about Arrington being wrong about Yahoo being wrong about Microsoft


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.

Disclosure: Long on YHOO

Yahoo adds an 8 billion dollar insult to the Microsoft Merger Madness


Yahoo’s not just turning down an internet king’s ransom for a Microsoft merger, but they even rejected a partial buyout from Microsoft that would have given them 35 per share for several of MY SHARES and also woud have added a cool billion or so to the bottom line in an MS advertising deal.

Kara Swisher has more details, and is looking great with a hip new hairdoo!

My guess is that rejecting this modifed Microsoft Merger offer will put a nail in the Yahoo board’s coffin. They had a case – albeit a weak one – that Yahoo unfettered with MS could have dug themselves out of a hole, but this makes it even more crystal clear that they weren’t even willing to do *anything* with Microsoft. I think that would suggest a level of corporate indifference to shareholders that is going to leave a lot of folks….well…..ticked.

Disclosure: long on YHOO

Yahoo Google Agree to Thwart Microsoft and Icahn


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.