So, I was making the rounds again of my sources at Yahoo’s major institutional investors yesterday and here’s the overall 411: Frustration. Confusion. Impatience.
And the bottom line from several of them–if Yahoo does not wise up and start seriously kibitzing with Microsoft over its takeover bid sooner than later, than some investors have signaled to the company’s top execs that they would likely back Microsoft if a proxy fight came to pass.
I really don’t think such a battle should happen, of course, as such a fight seems like it would only benefit the party that the pair should be concentrating on fighting: Google.
But it is interesting that such disgruntlement is coming from institutional investors, who are usually exceedingly and excessively polite to the brass in companies they hold stakes in.
In fact, Yahoo execs are probably about to get a more painful earful from other kinds of Yahoo investors–specifically, arbitrageurs, fast-moving risk investors who try to to profit from share price inefficiencies in the market and who also hold big stakes in both Yahoo and Microsoft.
According to sources close to the situation on both sides, this week Yahoo execs, such as President Sue Decker, will be checking in with major arb investors–much as they did with institutional ones recently–to talk turkey.
And given arbs are not known for their diplomatic nature (let’s be honest, they are essentially the Olympic hecklers of Wall Street), I would imagine they will roast that turkey if they feel Yahoo is lollygagging and costing them bucks.
Whatever the message Yahoo gets, what was also interesting from my conversations with investors is that, although there is significant overlap in major investors of both Microsoft and Yahoo, several continue to indicate that they would not mind if Microsoft upped its bid a little bit to assuage Yahoo.
While some note it is probably unnecessary–even though the $31 a share offer is now actually worth $28.99 (according to Silicon Alley Insider’s magical Microsoft-Yahoo Bid Calculator, courtesy of Henry Blodget) because of the drop in Microsoft’s share price–some investors think such a move might be a coup de grace about now.
Why? Well, because some investors think it’s just time in this increasingly cloddish pas de deux, as it is clear there are few moves left to Yahoo, except to extract a better price from Microsoft.
They note that unsolicited takeover fights typically take about four months to run their course. We are now moving into month three now and not a lot has changed.
Of course, BoomTown has argued that there is no good reason that Microsoft should up its bid–after all, why bid against yourself, given the weakness of Yahoo alternatives, as I posited here?
As I wrote last week:
I was a bit perplexed at why Microsoft would top its own bid and raise its $31-per-share offer for Yahoo to $34 a share, as suggested by Citigroup analyst Mark Mahaney yesterday.
There seem to be no other rivals and not much has changed since the software giant made its unsolicited offer at the start of February, except for time passing.
Of course, the only reason to do so then is to get the deal done sooner than later and perhaps the number was a public message to Microsoft CEO Steve Ballmer of that fact (as I said before, I am sure there are plenty of private messages too).
And while I am in the camp that Yahoo, well run, is probably worth a whole lot more than even $34–although perhaps not the $40 that Yahoo claimed last week–it’s still a matter of actually getting Microsoft to pay it by bidding against itself.
(BoomTown reiterated its contention that Microsoft does not want to up its bid last night here and the Wall Street Journal wrote a piece today weighing in on the not-bidding-against-ourselves idea.)
Still, some investors think Microsoft might get quicker results if it did so.
And since Yahoo and Microsoft share a very similar slates of investors, there is really not much money actually being wasted, they argue–a kind of out-of-one-pocket-into-another thing for many investors, which is why they are probably advocating it.
So, it might not be such a bad idea to grease the wheels, said one investor: “This all could have been done at the start of this whole thing, but if it means a resolution, then that’s the most logical thing to do.”
As if logic has anything to do with it!
In fact, the real issue is probably emotion, or as one person I talked to close to the situation called it: “Founderitis.”
In other words, the emotional connection to the fate of the company is stronger than the current reality for people like Co-Founder and CEO Jerry Yang.
I am not sure that is exactly true, given Yang has always been perhaps the most ethical and steadfast of the Internet entrepreneurs I have ever met (and I have met them all).
In his heart, I believe he truly thinks he is doing what is right for shareholders, customers and employees.
But in further dragging out the time clock–which is apparently a classic defense move in the M&A game and was probably the right tactic for Yahoo initially–Yang risks more trouble, such as perhaps a letter urging a deal from major investors that gets made public, for example.
In addition, Microsoft has been unusually non-aggressive so far–which, let’s be honest, is not really in its aggressively aggressive nature.
In fact, its behavior has been almost Zen-like–despite rumors, I do not expect that they will release a new slate of directors for Yahoo until they absolutely have to, for example.
But just because it has has been patiently waiting for that clock to run down, does not mean it will not get out the brass knuckles.
It could do anything from lowering its bid to waging a nasty public fight to walking away. And it is clear that Yahoo stock is basement-bound in that event.
Of course, self-restraint is probably a tactic it will stick to, since Yahoo is its one big chance to actually give Google a run for its money.
Because many, including myself, believe that if the merger does not get done, as search share continues to decline for both Microsoft and Yahoo and increase for Google, it will increasingly be a case of a pair of pygmies taking on a giant.
The truth is for the Internet’s continued good health and innovative growth, because Google as the overwhelmingly dominant player is flatly dangerous for everyone (except Google, of course).
Perhaps it is–in a lesser way–how Microsoft was in the last era, especially given how open the Web has become, but such concentration of power is never good for consumers.
Thus, there needs to be a credible and significant counter to the market power of Google in all arenas–search, display and a range of other arenas.
And while it is not a given that Microsoft and Yahoo combined could pull that off, I think it is safe to say, there is no other combination–not Yahoo+AOL, not Yahoo+eBay, not Yahoo+News Corp.–that comes close to having a chance to do that.
Over the weekend, I wrote another post speculating that the all-quiet-in-the-Yahoo-front situation led me to the obvious determination that Microsoft and the Internet portal just had to be talking, at least furtively, even via pigeon-carried messages.
Whether or not such talks will take flight, we’ll all just have to wait and see.
Please see this disclosure related to me and Google.
