The Ugliest Girl At The Dance: How Yahoo Destroyed Yelp’s Google Acquisition
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I felt very little difference between the engineering culture at Yahoo vs other "popular" companies. And Yahoo's products are good- think YUI, Yahoo Mail (client side stuff), Hadoop, etc.
They asked me one thing that Yahoo! could improve upon and I suggested that they focus on making one service really really great, which can then, in turn, drive traffic to other services. And to drop poking their head into everything (My yahoo, groups, games, social networking etc can be dropped).
Its sad to see how Yahoo's value has fallen recently, since internally it seemed very vibrant and had the kind of atmosphere I would've liked to work in.
My observation was that that was because the divisions that did make money were a cesspool of internal politics, back-stabbing, and constant re-orgs and re-writes as different managers gained power. For a while Yahoo held onto some good engineers in those divisions by throwing lots of money at them, but in the long run I think that just enabled those engineers to negotiate fat compensation packages at other companies.
I would think that the board of directors are supposed to act in accordance with the company's best interests and in a way that Enhances Shareholder Value.
In this case, since management supposedly refused to join Yahoo, it was in the shareholder's best interest to take the deal from Google. If it's true that the directors squashed the deal then they dropped the ball and failed at their job.
Yelp's board is probably mostly composed of top Yelp management and the VC's that put the initial money. If the initial VC's can cash out early for $200,000,000 more, why wouldn't they? Long-term, it wouldn't matter what would happen to Yelp (if it was all cash) - they'd be able to wipe their hands clean and give themselves the biggest exit.
It'd kind of like selling your house. If you were moving from Seattle to SF, you would try to sell your house for the biggest price. Say the best offer comes from someone with a bad history - they want to tear down the house, build a mcMansion, whatever. If this offer was 25% higher then the next competing offer, you wouldn't care - you would just sell it, move on, and then let the neighbors deal with their new problem.
Kudos to the Yelp team that cares about the 5-10 year value of the company, as opposed to the 1-3 month valuation!
Love you neighbor.
It's possible that someone somewhere amongst those simply trying to screw these businesses for every last cent they can get is someone who thought beyond capitalism and decided that being bought out for more was not the be-all-and-end-all but that they should hold to some other moral.
Sadly, I find that unlikely though.
Hindsight is 20/20, but I wonder how Yelp feels right now. Google/Yahoo are probably out now - who does that leave for a potential big exit? Microsoft? Amazon? Facebook?
Yelp is an interesting business, but not a "change the world" type business - at least not on its own, with its current revenue model. What if nothing else pans out, the founder's stakes get further and further diluted, and they end up with nothing? Are they going to end up kicking themselves? Even Friendster had an offer from Google to be acquired...
Yahoo has a notorious track record of poor acquisitions, to be sure: Flikr, Delicious, etc. I'm sure that's what Yelp was worried about - but Google hasn't done that much better either. A lot of Google's acquisitions have languished after being acquired. I wonder if there is still turmoil within Yelp management after this whole episode.
Even if Yahoo wasn't aware of the threat, I would think the Yelp board would be in trouble if they sold a "furnished house" to Yelp at a 25% premium, but it turned out that the house's furnishings all disappeared before Yahoo took possession.
If it became clear that the management would not work at Yahoo (for whatever odd reasoning) then surely the best interests of the stock holders is to take the deal that works..
Rather than let it go down the pan!
If the company is in distress, or a sale is considered inevitable, the main precedent often cited is Revlon:
http://en.wikipedia.org/wiki/Revlon,_Inc._v._MacAndrews_%26_....
If a company is not in a distressed state (referred to as 'Revlon circumstances') then the directors not only have a responsibility to accept the higher price, but also have to weigh price above all other parameters and have an obligation to shop or auction the deal to find and establish the best market price. This falls under Smith:
http://en.wikipedia.org/wiki/Smith_v._Van_Gorkom
Cases where a lower offer is accepted over a higher are very clear cut, most decisions are around having two equal offers, but where a decision is made against weighing up the future value and/or burden of any debt that makes up one of those buyout offers.
ie. if you get two offers of $500M each, but one of those carries a debt burden, you must take that into consideration when making your decision. Also, any offers made to any directors in terms of future employment are a conflict of interest, and those directors or managers must be excused from the negotiation or must make the interest known to the board.
The standard legal advice with Delaware companies is as follows (since most startups are based in Delaware, it is good to know this):
"When it becomes clear that the target corporation will be sold, the board of directors of the target owes a fiduciary duty to the shareholders to obtain the best value reasonably available under the circumstances, and may even have a fiduciary duty to run a fair auction. The board cannot favor one bidder over another when both bidders are offering an adequate price."
from: http://www.hogefenton.com/eblast_3-5-08.html
Other than Smith, there are plenty of cases where shareholders have sued and won after a company is sold and they feel that either the best price wasn't obtained, or that the directors had a conflict of interest (ie. they went on to gain employment with the acquirer at above-market/ridiculous terms - in effect a bribe for acquisition).
If you have raised money, and you get an offer from a company where they will give you a small buyout but will offer you personally stock in their company and a great salary etc, you have to be careful because you may be neglecting your duty (Ron Conway mentioned last year that this was happening a lot with Facebook).
Also related is the talk around the Parakey acquisition (though nobody sued, so no suggestion of any wrong-doing):
http://techcrunch.com/2007/09/25/parakey-did-investors-get-l...
Yelp's a pretty big company, and I have no idea what their bylaws look like, but a lot of corporations have provisions allowing those who hold a majority of shares to act on behalf of the shareholders by written consent. It doesn't sound like it would be too difficult for the founders + management to get together with a few of their investors and force the deal they want notwithstanding the Board's fiduciary duty.
In theory, with agreement from absolutely everybody, you could accept the lower offer. But that rarely happens, because why would a shareholder care that you don't want to go and work for Yahoo? They want the additional $200M.
Also by not accepting the lower offer from Google, they are hoping that Google comes back and matches the Yahoo offer - knowing that Google know that they can't possibly accept a lower offer.
The management at Yelp must own enough of a stake in the company, or control enough of the board or voting rights to prevent a forced sale from the VCs. I can imagine that in almost any other company the VCs may have forced the sale to Yahoo.
Also, I think they came up with internal Hackathons first?
Just to name a few things - I am not a specialist on all things Yahoo, but I don't get why everybody seems to hate them.
Of course that has nothing to do with their decision. They're probably much more concerned with who's more likely to make Yelp successful going forward. That's also pretty obvious. They'd bet $200 million that Google is a better bet. Talk about putting your money where your mouth is.
Good point about where are the better chances. They must really care for their product, then. I would assume it is a given that after an acquisition, you just try to get out of the company asap.
Well, that's certainly the public perception, but I think the reality is more subtle. Like BigTable and MapReduce are just whitepapers outside of Google, but you can actually download and use Hadoop, and who wrote that?
It's galling to see so much latent potential. Don't look at it as "no worse than big corps". The shame is that it's no better.
And to the poster who called that "mysogyny"...really? Hatred of women? All women? Not just the ugly ones who screw up your attempts to get with the hot ones? And hate? A little strong.
This article is about how yahoo is pitiable, and something you don't want to associate with. Kinda like ugly girls at dances.
Reality is cruel. Mea culpa.
You know, it honestly didn't occur to me that the title of this article could be construed as misogynous. But your comment...that type of comment is why I hate the tech industry sometimes.
Reiterated and refined: that comment is neither in poor taste, nor indicative of an attitude particular to the tech industry. It is not in poor taste because (I take this a priori) TechCrunch does not target an audience offended by remarks like that. And it is not indicative of an attitude particular to the tech industry because there are many other industries where that attitude will, on average, resonate more strongly (again, a priori).
So, the logic is that if the target audience is sufficiently horrible, anything can still be in the bounds of good taste, just not in the bounds of political correctness? By this standard, dive bar rest room stall graffiti comments are not in bad taste.
"Art has a purpose, which is to interest its audience. Good art (like good anything) is art that achieves its purpose particularly well. The meaning of 'interest' can vary."
http://www.paulgraham.com/goodart.html
As to restroom graffiti in a dive bar... what's the problem? If it was in the vatican lavatories, sure, you'd have a case. Where I'm from? Not so much. A lot of joints herebouts have sharpies in the head, should the muse visit you whilst micturating. I guess we're sufficiently horrible. Or awesome.
Ironically, isn't this something MA is implicitly arguing _against_ in the substantive part of the post? That the single quality of price shouldn't be the only thing we consider in acquisition offers? His title metaphor seems at cross-purpose to his content.
As a former intern... I concur.
We can say that they both have a history of not giving startups what they need to succeed, especially social startups. However, at Yahoo it's largely related to internal power struggles on the order of Europe in 1913, and it can seem much more personal.
As I understand it, startups are usually acquired through stock swaps. So that $X million really means $X million in company stock.
The investors cash out immediately, but employees vest years afterwards. So the employees are the only ones who care about the future value of the acquirer's stock.
If Yelpers had calculated that 3 years hence, the difference between Yahoo and Google stock moves would have erased the difference in initial price, then does the Google deal become the rational choice?
The difference wouldn't even have to be that large. If we assume a three year vesting period (with no partial vesting earlier on), and that growth rates are constant, then by my calculations the Google deal works out better for employees if (for example) Google grows by an average of 6% per year while Yahoo shrinks at 3.5% per year.
But this is just my rambling, I don't actually know much about this stuff. Informed comment?
It's not clear why they even considered the Yahoo offer if it was in fact impossible for Yahoo to go ahead.
This is pretty common, since it is an easy way to get talent into the company without all the recruiting.
The point I am making as that Yelp was obligated to consider the offer (even if it ultimately was doomed). In this case, that caused Google to bail, and Yelp was screwed-- but not because their board screwed up. The board only did what they had to do.
If for example I offered 3 trillion dollars for Yelp, would the board consider my offer (as opposed to laughing it off)?
I guess my question is, What is the "reality threshold" of an offer?
Never heard anything back from them.
I'm gonna guess that this was at least partially related.