Mithras Capital Proposes Microsoft/Yahoo Compromise

Includes: MSFT, YHOO
by: MarkNelson

Mithras Capital, owner of 1.7 million shares of Yahoo! (NASDAQ:YHOO), is proposing the following deal to break the current impasse over the Yahoo!/Microsoft (NASDAQ:MSFT) dilemma.

Mithras Capital is asking both Microsoft and activist shareholder Carl Icahn to seriously consider this proposal, for the benefit of both Yahoo! and Microsoft shareholders. By doing so, Yahoo! shareholders will be able to dictate the future direction of Yahoo!, avoiding the twin hazards of Scylla and Charybdis it now faces: either Microsoft failing to negotiate in good faith with a new Yahoo! BOD and management, or being stuck with the current BOD with which Microsoft refuses to negotiate further.

Here are the details of the proposal:

  1. Microsoft commits to buying the entirety of Yahoo! for at least $33/share in Microsoft stock and cash. Microsoft commits to paying at least 50% in cash. The balance will be paid in Microsoft stock, based on the average closing price of Microsoft stock from the time of signing the deal until deal closing. Microsoft makes it a prerequisite that its commitment is negotiated with a new Yahoo! BOD and management.
  2. The new Yahoo! Board and management, if elected by Yahoo! shareholders, commits to executing their fiduciary duty to seek the best deal for company. If it determines that, after due diligence, the Microsoft offer represents the best option for Yahoo! shareholders, it will accept Microsoft’s offer. If, in its due diligence, a superior deal is discovered by the Yahoo! board, Microsoft will have the option of matching the alternative offer.
  3. If Yahoo! Shareholders elect a new BOD and the BOD replaces current management, and, for any reason Microsoft reneges on it commitment, Microsoft will pay a breakup fee to Yahoo! equal to $12 per Yahoo! share.
  4. The new Yahoo! BOD agrees to rescind both the agreement with Google and, if possible, the employee change-of-management plan adopted by Yahoo! after the Microsoft offer made in February of 2008.

We believe this proposal is a practical and effective solution with tremendous value for both Microsoft and Yahoo! shareholders.

Disclosure: Mark Nelson is a Partner at Mithras Capital, which owns 1.7 million shares (long) of YHOO. In the past few weeks we have sent open letters to both MSFT and YHOO.  These letters have been picked up and published by all of the major business sites, including Barrons, WSJ, NY Times, Reuters, Bloomberg etc.