Posts Tagged ‘Jerry Yang’

Who Should Lead Yahoo? Answer: Nobody

November 18, 2008

Well, no one can say they didn’t see it coming. Jerry Yang is finally out at Yahoo, reports Kara Swisher with the big scoop.

And no one can say he didn’t deserve it. Yang, having spurned Microsoft’s rich takeover offer, bet the farm on a search engine deal with Google. And when Google pulled the plug on the partnership, after government regulators wanted to attach too many conditions to it, the search giant effectively ended the reign of Yang.

Under Yang, Yahoo lost $28 billion in value, as of today’s closing stock price, and hundreds if not thousands of of highly talented people left the Web pioneer. (Sorry, Jerry, I have enormous respect for your accomplishments but the company is not “stronger in many ways than it was just 18 months ago,” as you claimed in your goodbye memo.)

So what happens to Yahoo now? The company announced that it has hired executive recruiter Heidrick & Struggles to conduct a new CEO search.

But I think a strong argument could be made that NO ONE SHOULD LEAD YAHOO! In other words, shareholder return would be maximized if the board entered into serious negotiations to sell the company to Microsoft, if Microsoft still wants to buy Yahoo. And why wouldn’t it?

I’ve always said that the biggest impediment to Yahoo’s sale to Microsoft was Jerry Yang. I still believe to this day, as do many folks in Silicon Valley, that Yang never wanted to sell the company to Microsoft. I also believe that as long as Yang was at the helm, Microsoft CEO Steve Ballmer would never re-enter negotiations with Yahoo!

Now, with the incalcitrant founder out of the way, Ballmer has an opening to take another run at the company.

I realize this is an unusual suggestion. Some folks will argue that Yahoo could increase its value by hiring an outside CEO who could set a fresh course for the embattled giant. But I think the chances of a turnaround are very low, given the strength of Google, the hobbled state of the company, and the weakening economy.

A year from now, Yahoo shares could very well be worth half as much as they are today.

I imagine the Yahoo board could engineer a deal for $17 a share–a 60% premium to today’s close. Meanwhile, MSFT shareholders get YHOO at a 50% discount to the rumored $34 bid this summer.

If Microsoft does not want to buy Yahoo, then I say good luck to the CEO bold enough or crazy enough to take on this job. Whoever it is, the board is probably going to have to throw a lot of money at the person to convince them to take on these headaches.

One way to make the job more appealing would be to take Yahoo private. If the debt markets reopened, Yahoo would make an intriguing buyout candidate in many ways. Sure, it would be a risky deal, but if you took the company out of of the harsh glare of the public market, it could possibly buy Yahoo more time and freedom to dig itself out of this deep hole.

Microsoft Walks from Yahoo Deal; Ball’s In Your Court, Jerry

May 4, 2008

Wow. I can’t believe Microsoft actually walked away from the Yahoo! deal.

But while I am truly surprised, I believe Steve Ballmer made the right call. I’ve said from the beginning that this deal was too big and too risky–I called it a potential merger from hell several times around the office and on TV–especially given the cultural differences between the two companies and the fact that Microsoft had never before pulled off an acquisition of this size.

Now that the tech industry’s biggest soap opera appears to have reached its dramatic conclusion, there are two big questions to answer:

1. Why did Ballmer and the Microsoft board pull a 180 and change their mind?
There’s got to be more to this story. Some people will wonder why Microsoft did not come back with a slightly higher offer, in the $34 to $35 range, which could have sealed the deal.

Something happened during this process that gave Microsoft the willies. Maybe it was the strong negative reaction from their employees that caught management off guard. Or maybe it was Yahoo’s determination to not break. Or maybe Ballmer underestimated the greed and toughness of some major shareholders.

To me, the behavour of the reluctant shareholders is just as surprising as Ballmer’s retreat. Reports have said that some big Yahoo investors such as Legg Mason were holding out for $34 or $35 a share. Given that Microsoft was willing to offer $33 a share, those shareholders will probably live to regret that position.

But while Ballmer ultimately did the right thing for his employees and shareholders, I believe his reputation is going to take a hit in the short term. This was Ballmer’s big first play as CEO of Microsoft and it just looks a bit odd for him to reverse course on such an enormous strategic move.

Now, Microsoft needs to figure out other ways “scale” and go after Google in the online advertising market. Maybe Microsoft will try to cut a deal with AOL or MySpace?

2. What is Yahoo’s next move?
While I admire Yahoo’s toughness and determination to fight off the giant from Redmond, Jerry Yang & Co. have a lot of explaining to do. They just turned down a very handsome offer for their company. Many shareholders are going to be pissed and sell off the stock–while others are likley to launch a raft of lawsuits against Yahoo. My hunch is Yahoo plummets to the low $20s tomorrow morning. (It was around $19 before Microsoft made its $31 offer.)

The only reason it won’t fall further is because Yahoo keeps threatening to outsource part of its search traffic to Google. That could provide a short-term financial boost to Yahoo but it’s a losing long-term strategy as their share of search traffic would continue to decline, and it might even accelerate after such an arrangement. It also may never amount to much because regulators are likely to prevent the companies from cutting a substantial deal.

It will be interesting to see if Yahoo continues its merger talks with AOL, News Corp. or other partners. My hunch is that while they might, nothing is likely to come from it. For Yahoo, the merger talks seemed like more of a manufactured diversion or knee-jerk reaction than a well-considered move of true strategic intent.

So if Yahoo can’t or doesn’t pursue a significant deal with Google, and it doesn’t merge with another company, that still leaves the $44 billion question: What is Jerry Yang & Co. going to do to give Yahoo a better shot at remaining competitive ande lift its slumping stock?

Ball’s in your court, Jerry. Sometimes it’s dangerous to get what you wish for. Good luck.

Battle of Letters: Bill Miller Trumps Jerry Yang

February 14, 2008

Last night, SearchEngineWatch posted the full text of a letter Yahoo! chief exec Jerry Yang sent to its shareholders. The letter follows up on Yahoo!’s rejection letter to Microsoft, explaining why Yahoo!’s board believes Microsoft’s proposal significantly undervalues Yahoo and isn’t in the best interests of Yahoo stockholders. In the missive Yahoo CEO Jerry Yang emphasizes its strong brand, financial strength, strategic investments, technology, relationships with marketers and the huge opportunity in online advertising.

It’s not very convincing. “We are executing our strategy – and making headway,” claims Yang. Not.

A far more important letter was sent on Feb. 12 by the respected money manager Bill Miller. Legg Mason’s Value Trust fund, which Miller runs, is Yahoo!’s second largest shareholder. In his letter, Miller told investors that Microsoft will probably need to raise its $31-per-share offer if it wants to seal the deal. In the end, though, he said that Yahoo is in a “tough spot if it wishes to remain independent” and added that it will be “hard for Yahoo to come up with alternatives.”

What Miller’s letter shows is that most shareholders believe doing a deal with Microsoft is the best way to create more value for shareholders in the short term. It’s easy money up front, with no risk. To get the deal done, all Microsoft needs to do is sweeten that offer. Give Yang credit for restarting deal talks with News Corp. Forming some sort of combination with Fox Interactive Media may be just enough of a real threat to get Steve Ballmer to up its offer.

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Micro-Hoo: Is Microsoft following the HP Playbook or the News Corp. Playbook?

February 12, 2008

Yesterday, I appeared on Fox Business News to talk about the latest and greatest soap opera in the tech industry–Microsoft’s courtship (or bear hug) of Yahoo!.

On the show with my former colleague from TheStreet.com, Dagen McDowell, I said that Microsoft may be inclined to sweeten its offer to Yahoo! A new offer would never come close to the $40 a share that some insiders say Yahoo!’s board is seeking but I thought it was possible that Microsoft could come up a few dollars–especially since reports have said that Micrsoft was willing to pay around $35 for Yahoo! before its latest disappointing quarter.

Now I’m not so sure about that. The reason is late yesterday Microsoft released a statement calling its bid “full and fair.” The remarks came in response to Yahoo’s earlier statement that Microsoft’s bid “substantially undervalues” the company. While Microsoft did not say $31 is its final offer, it is clearly playing hard ball.

The question now is this: Is Microsoft following the HP playbook or the News Corp. playbook? (Microsoft has said that it studied the HP-Compaq merger as part of its due diligence for putting together a Yahoo1 bid.) HP applied a massive charm offensive and grueling lobbying campaign to win over Compaq shareholders.

Rupert Murdoch, on the other hand, took over Dow Jones by giving the confused Bancroft clan a very sweet offer and then putting on the vice grips. Many analysts thought Murdoch would sweeten his offer to close the deal, especially since the Bancrofts held preferred shares in the company. But Murdoch held firm and quickly carried the day.

I don’t know the answer to this question. But after yesterday, it looks like Microsoft is leaning more and more towards the Murdoch playbook.

Now, don’t get me wrong. Yahoo! is no Dow Jones. The Silicon Valley superstar has fallen on hard times but it is not in a mature and declining business. And Yahoo! did not drive its business into the ground. It’s just competing against a superior competitor. The problem for Jerry Yang is that he has yet to convince shareholders that he has come up with a better vision to combining these behemoths. If he doesn’t, it’s hard to see how he can hold off Microsoft–or hit them up for more money.

We’ll probably get another major clue in the next few weeks if Steve Ballmer & Co. wage a proxy fight. Microsoft could ratchet up pressure on Yahoo’s board by taking its offer directly to shareholders and waging a proxy fight to oust Yahoo’s directors; it has until March 13 to nominate a new slate of directors. Today, though, the New York Post reported that “Microsoft has hired proxy solicitation firm Innisfree in anticipation of a proxy battle to replace Yahoo!’s board.”

Let the games continue…

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