Valleywag
Belief is a powerful thing in this valley of hopes and dreams. Yahoo's board is set to reject Microsoft's offer to buy the company at $31 a share. Instead, Jerry Yang and Yahoo's other directors are seeking at least $40 a share, or nearly $60 billion — a price Microsoft may not be willing to pay. This is incredibly gutsy. It may wreck the hopes of a deal. And yet it may save the company.
No other bidders have publicly emerged. Microsoft could walk, leaving shareholders in the lurch — and Yahoo's board of directors exposed to legal repercussions.
The board's rationale? According to the Wall Street Journal, the $44.6 billion price "massively undervalues" Yahoo. (And the original price for the half-stock, half-cash deal has already dropped by $3 billion, along with the value of Microsoft's shares.) The directors also fear that regulators, who have already lengthened their antitrust supervision of Microsoft, will put a Microsoft-Yahoo deal through the paces.
There are two ways to look at this rejection. The cynical view: MIcrosoft has already established what Yahoo is; they're just negotiating over the price. Microsoft can easily afford the extra $12 billion; it's just a question of appeasing its own shareholders.
But there's a more optimistic view. Why is Yahoo's board willing to risk Microsoft walking away? Perhaps it's because, unlike most of the Valley, unlike Wall Street's investors, they have yet to write Yahoo off. Yahoo has value, they're saying. For Yahoo's dispirited employees, that's not just a matter of numbers. Someone out there believes that what they're doing has purpose. Do you Yahoo? In telling Microsoft "No," the board has answered yes.
Comments
Do you Yaho? (typo)
Pundits and bloggers always want a good story, and the only story that's been told is about how broken and beaten Yahoo is. What's nut's is that if you look at the financials, it is a company that is profitable, with growing revenue, and massive global reach in a rapidly growing industry.
Looks like Yahoo is going to tell a new story now... or at least go down fighting :)
I know the analysts will boo, but this is going to be a lot more exciting a slow, awkward, multi-year merger. Bravo!
Typo-licious for sure.
Jerry followed the advice of the Shark
Apologies for plugging another publication, but Roughly Drafted has an excellent article about the MS/Y! merger. His prediction - the merger would end up destroying both companies. I think that the reasoning he uses is pretty solid.
[www.roughlydrafted.com]
is this going to turn hostile?
@JustEaton: Fixed!
One must cross-pollinate typos, or there will be no crop come the next blog harvest.
Of course the board rejects the first offer by saying it wants more money. That buys it time to consider options, including the ad-sharing idea with Google, while technically meeting its obligation to uphold shareholder interests.
Yahoo shares continue to fall. Finally, the board utters a collective sigh, and says it will take the original $31 offer. Microsoft either bites the bullet or backs off -- at least for awhile.
Just an idea.
tsk tsk such negativity....
Y! will prevail... just you watch.
of course Yahoo has value, just not the value its board seems to believe. $40/share is excessive, and would not be good for MS stock (which has been rather stagnant/downward trending for a while). They might get $32 or $33, at best they will get the 52week high of 34, but, 40? not a chance (unless Ballmer lost his mind).
VCs usually figure 1/10 startups makes money. Companies acquiring small and medium sized companies figure 1/4 will be good acquisitions. Considering the culture differences between MS and Yahoo, Microsoft will either be overpaying for a brand (they'd fire the Yahoos), or there's a 1/2 chance it just won't work. That's an expensive bet, even for Microsoft.
I just looked it up... Yahoo hasn't hit $40 since Oct. 2000. Those guys are high on dope if they think this will fly.
How about N-O spells NO at any price?
Oh right, as if...
@froggy: Even old guys can snort OC-80, ya know.
Is this going to be a Dow Jones/News Corp with a technology spin? If so, we already know how it's going end.
The tone of the board's response is totally defiant. Well played, Yahoo!
Someone commented earlier that Ballmer lost his mind if he pays $40 a share for Yahoo. Have you seen pictures of Steve Ballmer? He already lost it for even bidding for it. The honeymoon is over for Microsoft - too fat to do anything right or catching any new trend. Yahoo has bunch of idiots running the company to the ground along with misuse of talents at all level - they got some 300+ VPs! I say that the smartest Yahoo is Terry Semel, took his share of $650M+ and knew exactly when the cow is milked dry.
A better way to look at it is this: if google is worth 150B, and Yahoo has more traffic and more avenues for monetization (rather than just search and ads), could it be said that yahoo is worth 1/3 of google and the stock is just underweight? Probably so.
@bbucy: I see what you did there.
@froggy: link to your numbers because they're wrong...
Late 2005/Early 2006
If they get on the stick, and pull their properties together under an umbrella of usability, integration, and value, and pump up their ad share, they can save the leaky bathtub.
Or Microsoft will counter, and there will be a sale. I heard that a Japanese telecom was seriously in the running, and that is from a pretty reliable guy that has never let me down. But, caveat emptor, his reporting to me as a source has been mostly on Yahoo's tech startegy.
while yahoo may have some challenges, it also has an incredibly rich mix of assets, people and business relationships and understands the traditional advertising business in a way that goog simply doesn't. don't count them out yet!
@froggy: YHOO was above $40 in Jan 06
31/share is overpaying.
This will totally fuck shareholders, who will bring legal action.
Just the latest blunder from a company with no idea what it's doing, what's it's worth, or how to stop screwing up.
Report: Yahoo will reject Microsoft bid.
Translation: Yahoo desperately hoping Microsoft will raise bid.
This is great news for MSFT! 42 billion for a bunch of websites is a lot of money. MSFT can pick these sites up in another year, when they will be available for cheap!
So, the choice is to give up and allow Microsoft to put the brand on whatever it wants after the bulk of the tech staff leaves, give up any hope of growth by outsourcing to Google, or fight on. Fighting on encourages the staff and might open the door to a cooperative-but-independent arrangement with Microsoft instead of assimilation...
If Yahoo! rejects the offer and ask for $40/share, Microsoft should walk way and spend $10 billion on their own MSN to improve it. They should make MSN popular like Yahoo!
@cowsandmilk: @875590076: I stand corrected. didn't notice that in the graph. Even so, before that it was still Oct. 2000. And their 2006 spike lasted for about two months.
@Owen Thomas: Thanks. Hope I didn't offend, I'm a blogger/writer myself, so I know how typos go. Nice article!
MSFT offer was already much higher than it should have been. Yahoo board are fools. Shareholders are going to go ballistic if this deal falls apart and stock tanks again.
Yahoo has been in tailspin for two years now. Do they suddenly think they are going to be able to change everything with a CEO who has no practical experience running a company? Semel and Rosenweig ran this company into the ground. Fact that Jerry and board are holding out for more just shows how far from reality they are.
The only person I know who uses Yahoo is my mom.. and the only reason she uses it is becuase she doesn't know how to change her homepage settings in IE. The best part is that once yahoo loads up she does a search for Google and then clicks on the first link.. she doesn't understand the concept of the address bar yet.. if she did she'd just go straight to google to begin with.
This is why Yahoo's in the shitty spot it's in right now. A bunch of morons who are running a company based on anything other than common sense, in this case pride and emotions, gets you into this situation int he first place.
@froggy:
I think thats the point... It tells Microsoft they don't want to sell. And if they did, they would for such a ridiculous price that all Yahoo employees will be well compensated and Microsoft shareholders will likely be pissed.
I am glad to see Yahoo stick to their guns.
@Rick: Are you kidding me? Just because a company is having a bad period doesn't mean they should sell, and that there is no hope.
This shows that Yahoo shareholders care about their property, they have invested emotion, and passion along with their dollars. To me that means a lot.
Let's be real folks, we all know that if Microsoft did buy Yahoo, they would probably mess it up. If they can't turn MSN profitable, what makes them think they can turn Yahoo around? Microsoft's web business is a joke. They need to bring in the right people and turn MSN around before just trying to "buy" a solution.
Selling to Microsoft would mean the death of the company. There may be people who think Yahoo! is uncool, but does *anyone* go to MSN? Any shareholder who thinks they should sell is saying "There's no hope, I just want want I can get for my shares." I don't think things are that bleak. Believing that stock price says anything about the value of a company is delusional.
@Zoo: Y! is the most visited website in the world. Period. A lot more people other than your mom use it.
Look at the facts: Most visited website. Top 3 market position in 21 different markets, including Mail (#1) and Search (#2, obviously). One of the strongest brands on the Internet.
It's so funny to me how people assume that because they don't use Yahoo's services, that they must be dying. Uh, no. If anything because of the massive amounts of information they can gather about you due to their portal (Flickr, Messenger, Yahoo Local, etc.), they're ideally positioned to bring social networking to a much ignored and financially lucrative sector of the Internet economy.
But no, since you're too cool to use Yahoo, they must, you know, be totally tanking.
are steve case & jerry levin leading these talks? cuz im in if so
@abmw: You mean Softbank?
I think Yahoo, Google and Microsoft are engaging a lost and useless battle over the INTERNET. A place that has no space limit and endless users daily which all use their products. Microsoft - Windows, Yahoo - Messenger, Google - Search engine
[www.i-guide.ro]
@Ian Bell:
Hope was 2004. 2008 is the legitimate fear that the company has begun to decay into irrelevance. Microsoft could create a compelling local platform with advanced internet capabilities if they bought some key properties.
In business, it's about good value, and this is good value for Yahoo. Keep in mind that ANY deal in tech is trading well beyond earnings and you can't work with zeitgeisty prices from 4 years ago. That's an epoch in this industry.
I'm sure Google will pay it to keep MS from buying them...maybe.
@andyfox1979: That is a very sensible and realistic assessment of the situation. Yahoo!'s problem is not inherent to it being Yahoo!, it's just stuck in a rut, not unlike another company that went from valley darling to dog and back to darling.
Gutsy move. You can bet that Yahoo's CFO and resident investment banker had a lot to do with this strategy. The big question is; Does Yahoo want more money or do they truly want to duck the MS offer? The answer can be gleaned from the behavior of Yahoo's Board. In other words, did they tell/discuss MS the whys and whens of their rejection before it hits the from page of the WSJ.
If Yahoo did, then they are simply fishing for more cash....and MS will most likely work with them to come up with a number they can all live with.
If Yahoo informs MS, and the world, via a press release then the fireworks will begin. And the war between MS and Google will deepen with Yahoo caught in the crossfire.
@ADismalScience:
huh? Did you even read what I said? If Yahoo shareholders didn't believe there was real value in the company, they would not ask for such a high price. Microsoft is simply hitting them when they are down, hoping upset and impatient shareholders bite - there is no "science" to that in business.
Just because someone gives you a fair value doesn't mean you take it. If you don't want to sell, you don't sell. I think Jerry made that crystal clear.
As for Microsoft creating a compelling local platform on the internet, when was the last time Microsoft did anything right on the internet?
I hope Yahoo gets the price they want from MS if they truly do decide to sell.
@It Must Be Take a Worm for a Walk Week:
Totally agree.
The problem: A lot of SVP & EVP level peeps are going to lose their cushy jobs if Y sells to MS.
The proposed internal solution: Sell off search to GooG. Take the incremental rev increase and chop 2000-4000 heads-search related. (the actual workers of course)
Why?:Because then there is minimization of the SVP and EVP's who get the hook. Just the Search related ones. The privileged class lives on.
What should they really do?: The go it alone option with GooG as partner could work. But 50-75% of the VP's and up need to go - regardless. Spend the $$ on the engineers, not the fiefdom builders.
What will they do?: Play it cool, say no to $31, go back to the shareholders and employees and tell them they will fight like hell to maximize value and protect the company's assets.-- Then sell for $34.
@Ian Bell:
Clearly they believe there is value in the company. Trouble is, that perceived value does not represent reality. And ultimately, guess what! Your shareholders/the board decide. If you don't like it, don't go public.
is it me, or does that emoticon seem kind of creepy
If Ballmer wanted to play rough at this point, he could simply say,"We'll wait till the next annual shareholders meeting and propose our own board. Good luck til then." Let the Y! stock tank, then 2-3 months later slowly buy up to the 15% limit at cheap prices (at which point the poison pill kicks in). Then at the annual meeting get the other institutionals to go in with him on the new board. He'd end up paying way less than $31/sh.
Since he actually is sincere about maintaining Y!'s value, I don't think he'll go that route. But just keep in mind that he doesn't have to play nice. He simply is.