On Yahoo/ Microsoft: Jerry Yang Should Be Fired

So Microsoft (MSFT) has taken its ball and gone home: the company announced that it is withdrawing its bid for Yahoo (YHOO) after the company refused its bumped-up $33 a share offer and stuck firm to its demand for $37 a share. The letter from Steve Ballmer, which my friend Paul Kedrosky also has posted, describes how Yahoo not only refused the offer, but made it obvious that it was prepared to effectively commit corporate hari-kiri in order to make itself as unappealing as possible. Among other things, it planned to sign a keyword-ad deal with Google (GOOG).

I’m all for fiduciary duty, and in particular the duty of senior executives to scour the globe for a competing offer in order to get the best value for their shares. But Yahoo has had three months and has turned up nothing but an unbelievably lame deal with AOL (TWX) (or so rumor has it).

What possible reason could it have for pushing Microsoft to $37? The existing offer was already 70 per cent higher than the stock was trading at prior to the bid. And the Google deal is just a poison pill by another name.

In my view, Yahoo CEO Jerry Yang has gone way beyond fiduciary duty and has been effectively blocking this deal in any way possible. I expect to see the stock tank, and deservedly so. If I were a shareholder, I would be calling for Yang’s head. This deal was by far the best opportunity the company had to achieve some value.

Comments

[schmooogle]

Why is a Google Deal a poison pill? All estimates say it will strongly raise revenue (and cut costs, as they cut out much of the huge YSM payroll)...and yahoo! is biggest media ad company online by a large margin. There is also the idea they would accept ads fro both (and maybe other) platforms for search and serve the ones with the highest monitization (skirt anti-trust, retain some ysm talent, max revnues).

The stock was trading down at 19 or 20 prior to the microsoft deal news, but the market was worse and Y! has beat and rasied guidance twice since then. Id put the stock at 25 range now and if the search deal is done right, above 30.

If this stock goes to 19 this week, id be buying on the overreaction. Jerry knew this was an option when he let the deadline pass....another plan is clearly in his back pocket.

2008 May 04 08:48 AM

[User 188145]

What will happen to msft price on monday?

2008 May 04 08:54 AM

[alpha1]

Jerry got overly greedy and Balmer called his bluff. In the end MSFT compromised by raising their bid from $29 to $33 despite tremendous MSFT shareholder pressure not over pay. In all likelyhood a deal could have been reached between $34 and $35.

Unless Jerry can get MSFT back to the table he is going to be facing extreme pressure because this deal is the only way he is ever going to get anything close to this kind of value for his company. Yang needs to be reasonable and realistic.

2008 May 04 09:04 AM

[FranG]

Yahoo stocks will drop like crazy on Monday. I would pay them for 25 cents each. Jerry needs his head examined. He lost the race!!

2008 May 04 09:17 AM

[bato sa bato]

To say that Mr. Yang and company underestimated Mr. Ballmere's move of backingout is an understatement. Mr. Yang n Company as well as Msft know that Yhoo is worth over and above $35 range when asian connection ,china in particular is tobe included in the equation. Msft was willing to pay close to $40. before when yhoo's worth less than present. This move is another gamble Mr. Ballmere is betting on, and like the others, it'll backfire and it's his head that will be rolling!!

2008 May 04 09:36 AM

[keepmerich]

70% premium over a day's stock price! Not for the average stock price for the last 6 months before their offer. If Jerry and board along with major share holders think Yahoo is worth $37, then that is it.

2008 May 04 10:12 AM

[Ames Tiedeman]

Mathew, I agree completely. Yahoo failed to understand that the share holders own the company. It is not a private company or some kind of toy to be played with. MSFT was more than fair. In fact, one could argue that MSFT was over paying at 33. Is Yahoo worth 7 x sales? Seven times!!!! I see nothing but trouble ahead for yahoo. Expect their stock to fall at least 5 on Monday. Yahoo has failed to monetize their asset further. Their paltry earnings to not warrant a stock price over 12.

2008 May 04 10:20 AM

[smmedo]

The best move by far was for Microsoft to walk away from the Yahoo deal. Jerry was being greedy and there's no way that Yahoo was worth the price they were asking. They should have accepted the original offer, which was more than fair, and together could have built a strong company that could taken the number one position over Google. I hope Yahoo's stock tanks on Monday; Jerry will be the one with egg on his face having to explain himself to angry shareholders.

2008 May 04 10:35 AM

[Indian Joe]

Jerry lost his "Ying"! how

2008 May 04 10:41 AM

[709394]

Microsoft's P/E is 16, the stock price is $29. Yahoo's P/E is 60, what do you think the stock price worth? About $12, right? Yahoo can't even affort to pay devidend! How could anybody think the stock worth $40? Who are you kidding? Think about this logically, if the stock worth $40 and if I were Yang, I would waste no time to purchase it at $31.

2008 May 04 10:56 AM

[User 170207]

Yhoo's board have completely ignored the shareholder concerns, a lot
of shareholders are going to lose a fortune, and YHOO may never get to $33 again. Google will lose interest in helping YHOO now that MSFT has moved on, this is absolubtly reckless.

2008 May 04 11:06 AM

[Lonnie Devereaux]

Yahoo should just focus now on their chocolate milk business. It's still the best one on the market.

2008 May 04 11:17 AM

[decoflair]

Not very well handled by both sides. Certainly a deal could have been struck at a the $33-34 price range. Yahoo!'s high for the year was $34.08. The $33 was very close to the 52 week high. What a charade we all went through for three months. Now, the big stock price slide. I am sure many huge funds may dump these shares in disgust.

2008 May 04 11:19 AM

[decoflair]

Perhaps if there is an over-reaction to the downside it may be a good time to add some additional Yahoo!

2008 May 04 11:24 AM

[709394]

For LOL, the beating estimate and raise guidance business is a bunch of crap. The only question is, how is the price per share determined? If the estimate would higher the P/E, that means the business is dying. If the estimate would allow the P/E to remain unchanged, that means the business is stagnating. If the estimate would lower the P/E, that means the business is growing. This is not rocket science.

With P/E at 60 and pays no devidend, why doesn't the Motley Fool comment on that?

2008 May 04 11:29 AM

[JerryRocks]

Jerry is thinking strategically, and you, Mr. Ingram, are thinking like very short term. Trying to merge these two behemoths is a mistake as colossal as their market cap. Sure, caving in to the MSFT gorilla would create short-term value for the shareholders, but not caving in will create much greater long-term value. Jerry realized this and acted accordingly by insisting on the real long-term value of the company. Steve was trying to buy his way out of his own failed attempt to replicate Yahoo and Google's success. Yahoo shareholders will only "lose a fortune" if they are short-term arbitragers. Those who already held the stock 3 months ago will simply be right back where they started, with a bright future ahead of them.

2008 May 04 11:35 AM

[709394]

The only way that the Yahoo can stop the stock from falling off the cliff is to initiate a $31 stock buy back. It's a big bargain if the stock really worth $40. Tell Yang to put the money where his mouth is.

Don't hold your breathe, Yahoo doesn't have the dought.

2008 May 04 11:36 AM

[wdcfan]

It's hard to part with your children but parents raise them to be independent. Mr Yang, could not part with his baby even though he has nothing left to give it. The partnership with Goog will not pass the smell test of the FTC, will effectively cede the ad revenue space to another company, a competitor no less, and leave small shareholders of Yhoo with a bad taste in their mouth. I bought at 22 saw shares drop to 18, had a rescuer in Msft raise my share price and sold at 28. "I got mine", if you're still in Yhoo, sorry for Jerry's brain Fa*t, but you've had plenty of opportunity to sell and make a couple of bucks. Yhoo did a real disservice to the small shareholders buy not looking at the numbers offered and overvaluing themselves.

2008 May 04 11:45 AM

[709394]

I am sorry JerryRocks, you don't seem to understand a whole lot about investment. If you have sold your Yahoo on Friday at $29, hold on to your cash and buy them back on Money at $20, you would have a growth of 45%. Sometime down the road, if Yahoo would ever reach $40, you would have $58.50.

Long term growth is fine, but if your investment drops dead, you'd have nothing to grow.

2008 May 04 11:46 AM

[trulyfree]

Mr. Lang has shown he has a relationship with China, I can only wonder if there is more to the story! Is it time for our esteemed regulators to look, or will money shade their eyes as it has in the past?

In any event Yahoo is now a publicly traded company and not owned by Mr. Lang. I would appear he is not representing the shareholders, only his overwhelming ego. - In Psychology courses I believe it is taught that bizarre people such as arsonist, etc. have a sexual climax when they observe what they have done. Could this merely be the situation now?

I am not smart enough to know any of the answers, only ask questions as peasant would do.

2008 May 04 11:48 AM