Yang's Exit: Board Ready to Revive Yahoo / Microsoft Deal Talks?

Jerry Yang's announcement that he will depart as CEO of Yahoo Inc. (YHOO) is likely to spark fresh speculation that the Internet company will seek to revive acquisition talks with Microsoft Corp. (MSFT).

Yang on Monday said he will step down from the post following appointment of a new chief executive. He had taken the position in June 2007 following the departure of former CEO Terry Semel. In recent months,Yang has drawn intense criticism for failing to strike a deal to sell Yahoo! to Microsoft earlier this year, then seeing the value of the company he co-founded in 1994 tumble amid worsening economic conditions.

"From founding this company to guiding its growth into a trusted global brand that is indispensable to millions of people, I have always sought to do what is best for our franchise," Yang says in a statement. "When the board asked me to become CEO and lead the transformation of the company, I did so because it was important to re-envision the business for a different era to drive more effective growth. Having set Yahoo! on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader."

In a statement, Yahoo! said that company chairman Roy Bostock would lead a process to assess potential candidates to replace Yang. The board has retained Heidrick & Struggles, a leading international executive search firm, to assist in the process.

"Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open platform model as well as the improved alignment of costs and revenues," Bostock said. "Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level. We are deeply grateful to Jerry for his many contributions as CEO over the past 18 months, and we are pleased that he plans to stay actively involved at Yahoo! as a key executive and member of the board."

After spurning a $33 a share, or $47.5 billion, offer to acquire the company from Microsoft in May, Yang had vowed to stay on as chief executive while trying to execute a turnaround of the company. But Yahoo!'s fortunes took a dive, along with the rest of the market, in recent weeks. The company also suffered a setback earlier this month after a search partnership it agreed to with rival Google Inc. (GOOG) collapsed under heavy scrutiny from federal regulators.

Yang's exit suggests that Yahoo!'s board is interested in rekindling deal talks with Microsoft, says Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co. Inc. "Yang's departure is a strong indication that the board is keen on re-opening discussions with Microsoft," he says. "The board has realized that [Microsoft CEO] Steve Balllmer is extremely unlikely to come back while Jerry Yang is in place. Most likely the board has picked up on that and strongly suggested that Jerry step down."

Both Yahoo! and Microsoft have continued to lose market share in search advertising to Google, and a combination of the two companies was expected to present a more formidable challenge to the industry leader. But after rejecting Microsoft's offer to acquire the entire company, Yahoo! this summer also rebuffed efforts by Microsoft to acquire only its search business, preferring instead the partnership with Google.

In July, after efforts by Microsoft to acquire either all of Yahoo! or its search business ended, the Redmond, Wash., software giant said it could not reach an agreement with the board of directors. At the time, activist investor Carl Icahn was seeking control of Yahoo!'s board of directors, but ended up gaining only two seats after reaching a proxy settlement with the company. It is unclear what role, if any, Icahn played in Yang's departure.

"Icahn probably pressed for change," Lindsay says. "The existing board had gone out on a limb and were prepared to give Jerry some time. But when it became clear that the path to $37 [a share] wasn't happening, their patience ran out."

Lindsay also says Microsoft would likely now offer no more than $15 a share, or $21.6 billion, in a renewed bid for Yahoo!. That would amount to a roughly 50% premium to Yahoo!'s closing share price Monday of $10.63, although only half of Microsoft's original $31 a share, or $44.6 billion, bid in February. 

See Nov. 17 statement from Yahoo!

Comments

[Tom B:]

I hope they don't beat that dead horse of a deal. MSFT is even more poorly managed than Yahoo. The only reason MSFT still exists is because armies trans-fat french-fry fed IT directors who grew up on DOS and know nothing else have not had their coronaries yet. Enterprise, where the requirements regarding functionality are minimal (E-mail, Powerpoint, word procesing), and the USERS are treated with utter contempt, is the only market where MSFT is successful

2008 Nov 18 09:55 AM