If Yahoo Only Had the Nerve–But Will It Be a Happy Ending?
With this bold gesture to reject the $44.6 billion offer from Microsoft, Yahoo will need more than hope for a happy ending, because there is a very scary downside to this plucky show of courage.
That’s because Microsoft–well known for its pathological aggression–has already shown in its initial hostile move last week that it is more than willing to play hardball. In fact, very, very, very hard.
And this slap, most especially because Microsoft thinks that Google is standing right behind Yahoo in the fight, will surely send Microsoft CEO Steve Ballmer into a corporate rage, if not a real one.
It is made worse because Microsoft’s paranoia is quite legitimate. Google’s top brass has actually been meeting with Yahoo execs this past week to help formulate a plan to help Yahoo and, of course, itself, by figuring out a lucrative outsourcing deal that will not attract too much ire of regulators due to Google’s dominance of the search market.
But Yahoo is going to need a lot more than Google if it really wants to stay independent, as I believe it actually does. While some will call this a negotiating tactic to get Microsoft to give it a few more dollars above its $31 a share offer, it is not simply that.
Yahoo’s top execs and now its board are making a swing-for-the-fences effort to keep it out of Microsoft’s hands.
To do that, though, Yahoo needs to show its shareholders that it has a long-term and viable plan to revive itself and, more importantly, has the management abilities to execute that plan.
So far, when times were not as dire, it has not, and claiming emergency conditions should be no excuse for how Yahoo has gotten itself into this sorry situation.
In fact, shareholders are going to be pretty angry if the shares of Yahoo drop precipitously due to this move–and they will–given that they got a $10 bump due to the bid, up from historic lows last week after Yang announced weak earnings last week.
In fact, the stock could dip even lower and force the company to perform or risk putting itself in an even worse competitive situation.
Of course, many Yahoo employees are going to be thrilled with this show of strength. This past week, many had told me the big problem with Yahoo was that its leadership did not inspire them enough with visionary goals of big wins.
“They are so plodding, it creates no excitement to work for anything great,” said one employee to me, expressing a common sentiment. “So you just work 9-to-5 and collect your salary.”
Well, sticking it to Microsoft should certainly crank the excitement factor up to the max.
Because, as cynical as Wall Street can be, let me reiterate: This is not simply a negotiating ploy by Yahoo.
Even though, by floating the $40 number to a reporter from The Wall Street Journal in what was clearly a calculated leak, Yahoo is acknowledging that it has a price (don’t we all?), I think Yahoo CEO Jerry Yang is not one to take lightly the idea of playing chicken with the powerful Microsoft with the company he obviously loves.
So I think this is much more than showy boardroom tap-dancing for the seats in the back–it is much, much more complicated than that.
In fact, one top exec was meeting with Yang and President Sue Decker last week and noted to me: “They were being careful about what they could say about the Microsoft bid, but all the body language communicated to me that they were going to give up the company to Microsoft over their dead bodies.”
Well, let’s hope not.
Please see this disclosure related to me and Google.
Comments
Great Move by Yahoo to get some backbone. This makes it a fully hostile takeover attempt for Microsoft unlike the bear hug this offer was before. The danger for Microsoft is that Yahoos move essentially amounts to a scorched earth military tactic. Even if Microsoft succeeds, they will end up taking over a “Scorched” Yahoo and Ballmer may end up with a pyrrhic victory.
Technology is all about the people, And with a takeover like this expect the talent of Yahoo to quickly dissipate. What Microsoft will get after it finishes the hostile bid will be only the people who couldn’t leave.
Yes Yes, Microsoft will get the brands and the products and the marketshare, and the software, But really what good is it without the people?
Posted by Yuva Mani at February 9th, 2008 at 4:09 pmHmmm, a leading Internet company rallying around a threat by Microsoft…where have I read that before…Kara?
Posted by Jim Kovarik at February 9th, 2008 at 5:22 pmKara: I think you’ve called it by correctly stating that this is likely not a negotiating ploy, but coming from the heart. However, as a shareholder, I’m incensed, unless there’s a good argument to be made in their Monday letter, beyond $40 bravado, about why $17 is better than $29 and change. Even though David and Jerry are 10% holders of the stock, this isn’t a private company and shareholders will have something to say. The Yahoo!s may be happy with pluck, along with Microsoft-bashers, but shareholders won’t be.
Posted by Eric Jackson at February 9th, 2008 at 5:34 pmAs a Yahoo! shareholder this bravado and backbone comes way too late. Not only does this management have no vision or ability to sell and excite people about the vision it also lacks management skills.
All this bravado is driven by an emotional anti-microsoft sentiment in Silicon Valley rather then a rational understanding of where Yahoo! finds itself in the marketplace — a.) growing revenue at ~13% while the overall market is growing at 20%+ b.) losing search market share at an alarming rate c.) declining profit margins. d.) stagnating user traffic across key parts of the Y! network. e.) demoralized employee base
Where was all this bravado 2 years ago when the company was fat, lazy, and being mis-directed by Terry ?
Posted by michael simon at February 9th, 2008 at 6:36 pmHi.
I’m not impressed by Jerry Yang’s reluctance. He also doesn’t have a passion for running the company himself, so I think he’ll make like Dave Duffield did at Peoplesoft and sell. I expect an all-cash deal as per http://www.texttechnologies.co.....cash-deal/, an increased deal price as per http://www.texttechnologies.co.....softyahoo/ , and more success than many commentators do as per http://www.texttechnologies.co.....synergies/ and http://www.texttechnologies.co.....nnovation/
CAM
Posted by Curt Monash at February 10th, 2008 at 7:53 amAh Swish, which would you rather do, create a company with roughly $40 billion market cap, or have a blog and a nice conference where you can slam the $40 billion company for not being a $160 billion company?
Posted by Robert Seidman at February 10th, 2008 at 7:37 pmIn the beginning we had three companies with market caps roughly thus:
M $302B, G $177B, Y $19.2B
Y/M = 6%, Y/G = 11%.
Post bid, we have:
M $265B, G $162B, Y $44.6B.
Y/M = 17%, Y/G = 28%, Y1/Y0=60% premium
Msft is taking a risk, but strategically it’s a good risk. They’re getting clobbered by Google and they don’t “get” the internet the way Yahoo does. If done correctly, Msft gets rid of a competitor and the acquisition is accretive. If integration goes well, Msft is on a good path vis-a-vis Google and vis-a-vis their own internet offerings. If Msft is smart (and remember they’re dumb about the internet, so don’t be surprised if dumb happens) they’ll keep the Yahoo brand and integrate the Msn stuff and not the other way around. Once again, if Msft does it right, they’ll add direction and leadership to a management-challenged Yahoo. So in the rosy Msft scenario, Yahoo is worth maybe $60B to Msft and only $19B or less to anyone else. Indeed, to Google, Yahoo is worth even less, because search is redundant to Google. Sadly, the main value of Yahoo to Google is keeping it out of the hands of Msft. But they’d have to pay a price that is 28% the market cap of Google, which is outrageous. Msft pays 17% the current market cap of Msft, but will get complementary value and hopefully accretive value. And you can be sure that Msft has analyzed the acquisition across all lines of business. If Msft executes on integration they win big; maybe they actually compete with Google post acquisition in search and especially advertising.
The dilemma for Yahoo is that maybe the bid is “massively undervalued,” but only in their eyes, and the eyes of Msft. Google just rolls their eyes.
It’s like trying to help a friend who’s in denial and needs to go to rehab. Msft is willing to pick up the rehab tab. Maybe Google is too, but it’ll be an irrational expensive decision that’ll cost them $40B to $60B if they do. But maybe Yahoo is family. We’ll see.
A Google acquisition of Yahoo still might be the right decision culturally, and especially competitively. So the question is whether Google will let Yahoo twist in the wind. Google, the fair-haired son of the internet, may see a burned-out wayward step-brother with too many X chromosomes hanging from the tree rather than an upright, living corporate brother. Msft is willing to cut Yahoo down from the tree and expects to revive them and walk arm-in-arm down into the promised land. Corporate benevolence at its finest.
Posted by Stew Konzen at February 11th, 2008 at 1:02 am