Yahoo's Top Investors Don't Want Microsoft to Raise Bid

While most Yahoo (YHOO) investors want Microsoft (MSFT) to raise its $42 billion takeover bid, Yahoo's biggest shareholders will lose billions of dollars if it does.

In fact, 36 of Yahoo's top institutional investors have already lost $9.5 billion on the proposed deal. (See chart at end of story).

The reason: Dozens of big institutions own both Microsoft and Yahoo shares, but most have bigger stakes in Microsoft. So while a higher bid will boosts Yahoo's stock, it undercuts Microsoft's shares.

Consequently, Microsoft CEO Steve Ballmer and Yahoo Jerry Yang are facing immense pressure from billion-dollar investors with stakes in both companies.

For example, Barclays Global Investors (BCS) owns 41.2 million shares of Yahoo, but it also owns 393.6 million shares of Microsoft. Since the proposed deal was announced, Yahoo's stock has surged from $19.86 to $29.66 as of Feb. 15. But Microsoft's shares have fallen from $32.60 to $28.42. As a result, the combined value of its Microsoft and Yahoo holdings have plunged in $1.21 billion.

Barclays British investors fund also has lost more than $1 billion.

So Yahoo's CEO Jerry Yang is sort of caught in a Catch-22. By pressing Microsoft to raises its offer, he's alienated many of his company's biggest investors. But if he doesn't fight for a larger bid, he'll anger vast numbers of smaller investors.

Rest assured that Microsoft CEO Steve Ballmer is facing the same pressures. Even the software giant is not immune to being pressured by shareholders such as Capital Research & Management, which has seen the value of its stake fall from over $18 billion to $15.8 billion. And even though Capital Research has seen its stake in Yahoo has risen to $4.5 billion, the institution's has lost $735 million since the proposed takeover was announced.

Top shareholders with stakes in both Microsoft and Yahoo

Below is a list of the top 42 shareholders with stakes in both Microsoft and Yahoo. Gain/loss based on market value of their holdings from January 31, the day before Microsoft announced its takeover bid, until February 15.

click to enlarge

Disclosure: none

Comments

[Tom B:]

Am I naive? If MSFT DOESN'T raise the bid-- Yahoo gets away right?

2008 Feb 19 06:39 AM

[Tom B:]

Reuters is suggesting a proxy fight may be looming...

2008 Feb 19 11:02 AM

[TA:]

I just read that, it's been authorized by MSFT - yes,yes,yes! no raised bid for YHOO garbage!
Finally a few brains are taking over!

Unfortunately, with the majority of large YHOO shareholders behind it, it will likely go through

2008 Feb 19 12:54 PM

[devils advo...:]

The proxy is a bluff. It would never succeed and here is why! The proposed deal is equal to a stock price that is extremely close to the current value of yahoo (due to msft price drop). So, if you were an institutional investor, would you a) hold on to your shares for an indefinite period of time and an ugly proxy battle in order to vote to approve the deal (with more or less of an upside cap on the stock between now and then due to the deal) or b) sell your shares now for just about the same price. If microsoft chooses to try to get yahoo via proxy, there will be full capitulation of institutional ownership. Now, if you were a new stockholder, buying in in the 29-30 range, would you vote to accept a deal in the....er...29-30 range? Or would you vote NO to get more? There is no way that the shareholders who will vote yes will still be shareholders at that point in time because they can already get the deal price right now without having to go through the messy battle and downside risk (due to MSFT shareprice volatility). Those who will, think that the stock is worth more and therefore will vote no. IMO

2008 Feb 19 06:59 PM

[Tom B:]

According to Wikipedia, most proxy battles fail. This one-- who knows? It looks like Yahoo has a stupid board-- a Chairman ready to sell his fictional soul to the fictional Devil; non-staggered board terms. Maybe they can get their act together and put in mucho options for employees to raise the cost of take over.

Maybe Blah123 and I agree slightly on this one-- he doesn't want to see MSFT commit hari-kiri by blowing their whole war chest on Yahoo; I don't want to see Yahoo's brains eaten out by the night-of-the-living-de... Crashware company from Redmond.

2008 Feb 19 09:45 PM