Yahoo's Yang Sticks It to Shareholders and Employees

Includes: AABA, MSFT
by: Todd Sullivan

After watching its stock price fall continually from its post internet bubble high of $43 set in Jan. 2006 and seeing Google (NASDAQ:GOOG) surpass it in virtually every online metric, Yahoo's (YHOO) senior management has decided to make sure if Microsoft (NASDAQ: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. (NASDAQ: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.

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