The Microhoo debate rages on
Don Reisinger thinks Jerry Yang needs Microsoft more than Microsoft needs Jerry Yang. Is he right?
Don't you just love when the one person who didn't want anything to do with you suddenly needs you? Well, in today's crazy online world, that's exactly what's going on with Jerry Yang and Microsoft. Just a few months ago, Yang was doing everything he could to turn Microsoft away. And now, he needs to do everything he can to bring them back.
If you haven't been following the latest on the Yahoo front, the company's stock price has plummeted (it's at $21.61 right now, way down from its $29 share price back in February); executives are getting out of town as quickly as possible as a reorganization gets underway; Carl Icahn is exerting unbelievable pressure on Yang; and shareholder confidence in Yahoo is dropping by the minute.
All the while, Yang has tried to save what's left of his bleeding company, but to no avail. Unless something major happens soon, Yahoo will be far beyond the point of saving and although the very thought of selling the company to Microsoft runs against Yang's own principles, what other option does he have?
In order to save Yahoo and maybe walk away with some cash himself, Yang has no other choice but to strike a deal with Microsoft and walk away from this albatross. And although Microsoft was willing to offer a substantial premium on the stock price, which saw the value reach into the mid-thirties per share, don't expect anything of the sort this time around.
Based on the financial health of the company, the incredible internal problems, and the fact that Yang no longer holds any leverage, I don't see Microsoft offering more than $25 per share.
To allay shareholder fears, Yahoo released a letter to shareholders yesterday explaining why it chose a search deal with Google and what the implications could mean to the company.
In reality, it was nothing more than a desperate plea by Jerry Yang and Roy Bostock to keep shareholders on their side and explain the benefits of working with Google. But let's face it -- the company wants nothing more than to be acquired by Microsoft and is using this deal to bring Ballmer back to the table.
Yahoo couldn't care less about Google and is hoping against hope that it spurs a quick buyout. Before the Google deal was announced, Yahoo went back to the table with Microsoft hoping for a last-minute reprieve. When that didn't happen, it was forced to sign the deal with Google to soften the Icahn blow and hopefully stop the share price bleeding. But it didn't work.
Instead, the stock price continued to fall -- shareholders don't care about sector deals -- and Jerry Yang was left with a company that had no leverage, needed help, and didn't know where to find it.
After realizing what was really happening and waking up to the reality that Yahoo isn't in the driver's seat anymore, Yang was left with no other option but to entertain a deal with Microsoft and hope that he can get out from under this albatross before it's too late.
And perhaps this is where the irony comes in. Yahoo is still a wildly successful company that enjoys quarterly profits that reach into the $500 million range. But with all that success, its management can't muster better support from shareholders. And to make matters worse, it can't even keep executives on-board.
Maybe Icahn was right all along -- the management really is running this company into the ground.
A few months ago, the very thought of selling his company to Microsoft was too much for Jerry Yang to handle. He was under the impression that Microsoft would ruin his legacy and the once great Yahoo would be a forgotten rung in the online ladder. But now those principles have seemingly been thrown out the window.
To make matters worse, Microsoft will never offer $33 per share like it once did. And why would it? Yahoo needs Microsoft more than Microsoft needs Yahoo, and with a stock price that can't even hit $22, why should we expect an offer that's much higher.
Based on the fact that Yahoo is still extremely profitable, has a solid group of employees, and could drastically change the way Microsoft does business, the company is still a major asset to Ballmer and company. But because of its issues with shareholders, the fact that it can't get out of its own way, and that it has a plummeting stock price, Microsoft shouldn't offer anything more than $25 per share.
By doing so, it puts Yang in a tough spot. Does he take an offer that's substantially lower than the last just to get out? Or should he reject the offer on principle in the hopes that Microsoft will come back to the table with something higher? Surely the second option would help him save face for a little while, but how would shareholders react? Will Icahn suddenly enjoy a resurgence and finally put the stake through the board's heart?
These are all the questions that Yang and Borstock need to answer. And based on their track record, I seriously doubt they'll make the right decision.
At this point, Yang should cut his losses and accept the first deal Microsoft offers him. Even though his stewardship of Yahoo will easily go down as one of the worst in history, at least he can escape with a slight premium on the stock price and let shareholders walk away with something to show for all their angst.
The end is near for Jerry Yang and Yahoo. Microsoft has expressed interest and is willing to pay a premium on a stock price that continues to fall. Yang needs Microsoft now more than ever, and I just don't see any other option but to wave the white flag and sell of his beloved company.
Maybe Ballmer really was the smartest of the bunch all along.
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