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)
After Yahoo turned down Microsoft’s offer of over $31 per share there has not been much good news for a troubled Yahoo, with a price now right about *half* what Microsoft offered. However it does appear that Yahoo will merge with another struggling internet empire: AOL. Time Warner’s merger with AOL years ago will probably go down as one of the most misguided corporate marriages in history leading as it did to nothing but heartaches and lowered TW values, but the Yahoo deal actually seems to make a lot of sense to me if Yahoo can get it’s management act in gear. With AOL Yahoo will control even more valuable internet items such as about half of all the email accounts in the world. Some reports suggest that Microsoft may have even more interest in a combined Yahoo AOL. In today’s challenged fiscal environment it seems unlikely Yahoo could refuse another MS takeover even at a reduced cost per share.
Today Yahoo Shareholders are meeting in San Jose. Or maybe we should say non-meeting since there are apparentely mostly empty chairs and uneaten pastry in a venue that was to hold 1000.
With shares now trading about $19 you’d think shareholders would be out in force with torches and pitchforks, but Yahoo management – at enormous cost to shareholders and the company – has kept the corporate raiders and Microsoft at bay partly by granting a newly sheepish Carl Icahn a seat on the board and two more seats. Icahn noted last week that enough large shareholders were sticking with the current board, making it impossible for him to take over the company. His plan was fairly simple – buy a lot of Yahoo and then sell the company to Microsoft at a huge profit. As a shareholder I remain *totally* confused as to why large shareholders were unwilling to support this move – the obvious choice in terms of maximizing shareholder value with minimum risk.
However with challenges come opportunities. Yahoo at $19 is looking pretty ripe right now given that Microsoft offered $31 just months ago when Yahoo’s prospects were not significantly different than they are right now. Either MS is horribly miscalculating Yahoo’s value, or the Market is underestimating that value. Clearly the current board is convinced there is a lot more value, and in this at least I would agree with them.
It’ll be interesting to see how the rank and file Yahoo folks are feeling at SES San Jose in a few weeks. SES is the biggest search conference of the year in the heart of Silicon Valley, and hundreds of Yahoo folks will be there. It will be interesting to get a feel for the current morale challenges at the company.
Disclosure: Long on YHOO. Considering buying more.
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.
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.
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.
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’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!]