Yahoo's Yang Sticks It to Shareholders and Employees

After watching its stock price fall continually from its post internet bubble high of $43 set in Jan. 2006 and seeing Google (GOOG) surpass it in virtually every online metric, Yahoo's (YHOO) senior management has decided to make sure if Microsoft (MSFT) does buy them, they are richly rewarded. Too bad for shareholders that actions like this just might cost them money....

A new "employee retention and severance" program for SENIOR EXECUTIVES looks like this:

• Up to two years of full pay and benefits following departure,
• $3,000-$15,000 of "outplacement services" (help finding a new job),
• Accelerated stock and option vesting, and
• The ability to leave the company--and trigger the severance payments--for any "good reason".

Now what is important is that this plan goes into effect "in the event of a change of control" of the company. What this all amounts to is a near $1 billion increase in the cost of any acquisition of Yahoo. While in this case the cost may be born by Microsoft, it will probably come at the expense of a reduced offer price, lower bonuses to retain current non-senior executives and, for these shareholders who may elect to take shares for the transaction, a prolonged "synergy" period as the excess costs are absorbed.

Essentially, Yang realized that the offer from Microsoft was a great one and that he would have a hard time getting shareholders to say "no". He also recognized that Microsoft was the only bidder, despite his attempts to interest Google and News Corp. (NWS) and that a higher offer was not forthcoming. Without a higher per share offer coming, this loathsome action was the next best choice to wring a few more bucks for him and his cronies out of the deal. Slimy...

All this so Yang & Co. can cash out at a higher price than the rest of the "little folks" (this would include his employees and shareholders)? With a mindset like this, any wonder the stock has been a dud this decade?

The worst case scenario would be for Microsoft to tell them to take a hike and let the stock's price, currently at $28 ($3 below the offer price), plummet back down to the $20 level it was at prior to Microsoft's bid. Once there, it can comfortably resume its downward march to $10. All this due to greed.... I thought we were trying to get past management enriching themselves at the expense of employees and shareholders?

Disclosure: No position.

Comments

[JGS007:]

Great article!

2008 Feb 21 07:13 AM

[hectorsez:]

You bet, what a great comment. The extent and shamefulness of corporate executive greed is truly shocking. I work for Merrill Lynch and I was sickened by Stan O'Neal's whopping sayonara pay off of 160 MM.

2008 Feb 21 07:22 AM

[Pj568:]

I wouldn't worry about the shareholders. They have now had ample time to sell at 28 to 30. The current holders are now in a higher risk game by choice. Post announcement volume indicates that most have elected to opt in.

2008 Feb 21 07:39 AM

[yankini:]

It seems Todd is new to M&A. Severance plan is standard practice. It is just to keep employees from fleeing. Microsoft doesn't lose a dime if it treats the employees as they are! Employees and execs can not make this money unless their jobs are cut or they are demoted. In fact, Microsoft's retention package would have spent a larger amount of money any way to make people stay. Yang has done the work fro Microsoft, albeit, cheaply.

2008 Feb 21 09:00 AM

[Tom B:]

This is a standard "Poison Pill", a response to a hostile predator. I'd like to see Yang do more, to make an acquisition really painful.

"Too bad for shareholders that actions like this just might cost them money...." This does NOT hurt shareholders if MSFT walks away-- as they should. In fact, I doubt it hurts YHOO shareholders AT ALL. If Ballmer persists in his stupidity, MSFT bears the cost.

2008 Feb 21 09:44 AM

[kinda confused:]

what a horse's rectum! Sullivan is missing the point - the deal is undervalued, and maybe Yahoo does not want to be purchased by MSFT. To associate protecting employees with corporate greed raises a big question for me about Sullivan's intelligence.

2008 Feb 21 10:03 AM

[oceandude:]

You've made two errors.

1. It's not "any good reason" like you say. The "good reason" must meet specific criteria defined by Yahoo, and these are not trivial.

2. It's really crappy that execs get longer severance than ordinary employees, but ALL employees get accelerated stock vesting. That's pretty nice and you didn't mention it.

2008 Feb 21 10:47 AM

[Tom B:]

"2. It's really crappy that execs get longer severance than ordinary employees,"

It's really crappy that the Countrywide guy walked away with 100 M. It's the Golden Rule; "He Who Has the Gold Makes the Rules".

Fewer good exec jobs are out there than employee/coder jobs, they would argue; thus, they may need more time.

2008 Feb 21 10:52 AM

[grishick:]

In the upcoming episodes:
- MSFT looses the proxy fight
- YHOO shares tumble down to teens
- YHOO shareholders sue Yahoo board
- MSFT offers a $25/share bid
- Yahoo board has to accept

2008 Feb 21 11:57 AM

[Carl Icahnt:]

Sorry folks, Toad Sulliavan here. Yes I post on Seeking Alpha, but I am completely unable to understand the Edgar filing here:
yahoo.brand.edgar-onli...

Language like "Accelerated vesting of all stock options, restricted stock units and any other equity-based awards previously granted or assumed by the Company and outstanding as of the severance date" is too complicated for my narrow minded brain.

My disclosure of position is when I wrote this article AFTER selling my shares at 29 when I was hoping for 35 boo-hoo ;)

2008 Feb 21 01:30 PM

[thenoseknows:]

Its really a shame that General Yang has decided to take advantage of not only the shareholders but all his "rock" employees as well. I guess its take the money and run type of corporate thinking. Its too bad that the senators that had investigated Yahoo for the China incident didn't fine Yahoo in the process, that would have served him right.

2008 Feb 21 01:34 PM

[h8ter:]

Yankini nailed it. Todd and others completely missed the point.
As with any M&A, employees are worried and rightfully so since there will be layoffs with all the overlapping roles.
Many have already left or are looking.
The M&A could take many months or year(s) to finalize. Meanwhile Yahoo still needs to keep going but it will be hard if the talents keep leaving.
The severance package provides some stability and comfort for the employees to keep working through the distractions.
Also, it may encourage some to stick around and see how they like working for MS.
Bill Gates said it himself that the People of Yahoo is what MS is most interested in. If he is being truthful, then Y! probably did him a favor.

2008 Feb 21 01:57 PM

[Todd Sullivan:]

guy,

the severance is for "senior management" not the rank and file employees.... basically Yang and his crew get enriched while Sally the receptionist and Joe the programmer get the shaft...

nice...

2008 Feb 22 11:08 AM

[oceandude:]

Wrong again. The severance is for everyone. The only difference is that you get more paid severance time the higher up you are.

2008 Feb 23 10:36 AM

[ArturoGarza:]

I think the plan for Senior Executives is benificial to the employees, but not for the company. Microsoft owning yahoo gives them more capital ,but I don't agree with up to two years pay of the Senior Executives leaving. I think that it is unfair to all those in the bottom part of the latter.

2008 Feb 25 10:27 AM

[becky reed:]

i think that the benefits to the senior executives is unfair. only those available benefit, which makes the whole company look worse. the company should come up with a new plan that gives the same kind of benefits to all employees, no matter what hierarchy.

2008 Mar 03 06:41 PM

[AmyStan:]

I think the merge could be good for both companies, but I do wish they could come up with a better solution for all the younger employees of Yahoo that were just getting started in their career. This is just another example of how big companies care more about the executives than it does the average employee.

2008 Mar 04 09:25 PM

[Heather Walsh:]

I think it's very considerate of them to help out executives with help finding a new job, etc. Although it does not help out employees that are lower on the ladder... mergers affect everyone & these two companies need to be very careful & take into account the emotions of their employees.

2008 Apr 25 11:54 AM