Microsoft Withdraws Yahoo Bid; Walks Away From Deal
techcrunch.com
techcrunch.com
I can't personally see why Yahoo would be worth $38 a share. The job of the board is to do what's in the best interest of shareholders but ultimately it personally seems this deal was not rejected because of the numbers but because of the sentimental attachment to Yahoo independence.
Expect some litigation
The shareholders sue the management, the management spends its time defending itself from lawsuits rather than leading innovation and increasing stockholder value, department projects go awry and more employees leave, and the stock drops. Microsoft makes the same kind of offer a few years later, but at an even lower price. The new management, seeing what happened to their predecessors, will take the offer, and Microsoft gets all of Yahoo!'s assets at a bargain price.
It's absolute short-sightedness on the part of stockholders. Surely the mere fact that Microsoft was willing to buy the company at a 70% premium indicates that the stock was undervalued to begin with, and that people with the tech & business knowledge to see the big picture (not just the Microsoft execs, the Yahoo! execs too) knew the value of the company could be increased.
Even if the management at Yahoo! can defend itself from these lawsuits, they'll have been put on the defensive, on every front. No major initiatives, no bold new plans, no big mergers or acquisitions that could actually help the company; if they rock the boat a second time so soon again, they won't avoid being tossed out. So while they stay the course set by the backseat drivers who don't even have a full view of the road, Microsoft is free to out-compete.
That does not follow. MSFT might see more value in yahoo as a part of msft than yahoo run independently.
Perhaps you are right. But shareholders rarely hold stock to build good businesses they are there to make money. They would happily invest in a bad company if it was about to be bought out for a huge premium. Once you go public, few things matter other than the numbers.
Plus 72% of Yahoo shareholders are professional money managers, arbitrageurs, and regular investors. These people are likely to want this deal to go through.
It's not only bad VCs that can do this, apparently bad shareholders can too.
They should have dumped their stock when the offer was first floated (and stocks reached about the same premium MS was offering). Yahoo's management never said it would accept that first offer and all shareholders who "lost" money are those who expected a reversal of the initial positions ("we won't pay a penny more" and "we will not sell at this price").
Things like these happens all the time.
And I would not rule out an evil plan where all MS intended was to keep Yahoo's management buried in zillions of frivolous lawsuits (that would have to prove Yahoo's management somehow knew this offer was in Yahoo's shareholders' best interest and resisted despite of that)
IIRC, MS was buying back stock. By making this offer they got a nice discount.
It is not their responsibility as shareholders to do that, but it is the responsibility of the company to offer the best value to its shareholders.
The market thinks about this, and MSFT's price when the markets open tomorrow morning reflects their guess as to whether I will get 51% of the company or not, whether Ballmer will have me killed^H^H^H^H^H^H tied up in litigation to prevent me buying the company and firing him, whether Yahoo will raise some money from Google to buy MSFT as a white knight, whatever.
The point is, the market price when a company is "in play" reflects a bunch of people making wild-assed guesses about the possible outcomes and the relative likelihood of each outcome.
If you are strictly in it for the money, it's your responsibility to make your own guess. If you guess is higher than the market value, you hang on to the stock. If your guess is less than the market value, you sell.
Lawyers will do anything, but IMHO, the only time you sue management is if they make a promise they do not deliver.
But what if Ballmer stands up and says, "Do not sell to Reg for $35, we are $28 today but I am going to buy Yahoo and our stock will be worth substantially more than $35 as a result of the transaction." I don't get my 51%, and then Ballmer doesn't buy yahoo. Now shareholders should sue, they hung on to their stock because of what Ballmer promised.
Consider what happens if MSFT's stock trades at $33 and Ballmer blocks me from buying MSFT in court, then the stock drops back to $28. I can see a lawsuit. But what really happened? Shareholders culd have had a sure $33 in cash by calling or emailing their broker and saying "sell."
They _chose_ to hang on. Why? because they gambled on getting $35 if I got 51% of the stock? or hoping for $40 if I had to raise my bid? That's their gamble, why should Ballmer be on the hook for their wagering?
Hanging on to your stock because you guess that the stock will be worth more is entirely your problem. Hanging on to your stock because management make vague promises about the long term value of the stock is also your problem. You certainly can't sue the week after the offer.
But Yahoo management has a legal obligation to do what's best for the company's shareholders. Unless they've got a silver bullet that will double YHOO's market cap soon, their performance on this front seems to be below average.
http://www.sunworld.com/swol-01-1996/swol-01-apple.html
The board turned Sun down and then went out and paid $400 million to buy NeXT. For all intents and purposes, they paidf $400 million to buy an operating system, hire an OS team headed by Avie Trevanian, and oh yes, provide a nice signing bonus for their new part-time CEO, some guy named Steve.
Lots of shareholders grumbled.
Of course, that was Apple and this is Yahoo. I don't personally think Jerry has Steve's touch, but I sincerely hope he makes me look like the wrong end of an Equine.
http://www.sunworld.com/swol-01-1996/swol-01-apple.html
The board turned Sun down and then went out and paid $400 million to buy NeXT. For all intents and purposes, they paidf $400 million to buy an operating system, hire an OS team headed by Avie Trevanian, and oh yes, provide a nice signing bonus for their new part-time CEO, some guy named Steve.
Lots of shareholders grumbled.
Of course, that was Apple and this is Yahoo. I don't personally think Jerry has Steve's touch, but I sincerely hope he makes me look like the wrong end of an Equine.
Steve Jobs came back in 1996 - it took 5 years for them to launch the iPod. It's anyone's guess where Yahoo will be in 5 years - maybe Jerry Yang will be looked at as a hero, maybe not. Predicting Yahoo's position five years from now is impossible.
Maybe radical changes can only start within a certain distance from the top, and as the company gets bigger, the bottom moves further away from the top and can no longer initiate those sorts of things. Just a thought.
This is a company with virtually unlimited resources (talent, cash, experience, partners) that wants to win every war, but can't seem to win even a single battle as the world passes by. Whats missing? Leadership. Time for vision to replace bullying. Stay tuned...
The two things they lack are respect for their competition, and respect for new ideas. The ideas were there, but Microsoft didn't listen. Their competitors did.
Probably the result of Microsoft getting huge and evil and not caring about their customers. They didn't notice that technology was passing them by.
And then there was Google. When you get a lot of smart people working on something and give them a head start, it makes it very difficult for a competitor to catch up. :)
I don't think Yahoo is much better. If the average Yahoo shareholder understood how bad "Panama" is given all the hype it got, they probably would have sued Yahoo by now.
On the other hand, Microsoft comes out of this looking pretty good (among the none geek crowds). They tried to buy this poor company at a 60-70% premium.
I wonder if MS has another acquisition target in their sites .
In this case, a much-needed culture shock to Redmond was almost an explicit perk of the deal for MSFT. It's not hard for me to imagine that a MSFT with a revitalized web strategy could go on to acquire more companies than they will on their own.
I think a MSFT+YHOO merger would have been massive fail, but it's Microsoft that ends up dodging the bullet here. Yahoo just takes one. Where exactly is Yahoo relevant anymore?
1. Pull out offer 2. Shareholders complain 3. Markets kill YHOO 4. MSFT comes back and buys cheaper?
Really though, what this really is is an example of why you should have a dual-class share system where there are "investment shares" and "voting shares", and investing doesn't give you automatic voting rights. Yahoo for some reason didn't have that, and it put the board especially at risk to hostile takeover.
It would be perfectly fine to stop right before going public and run the company the way you wanted.
Cargill is a private company with $67B in revenue in 2004 so it's not a question of generating the money (http://www.forbes.com/lists/2005/21/5ZUZ.html).
Really? Their balance sheet doesn't show a huge amount of long-term investments. And yesterday, $1.9 billion worth of Microsoft stock alone changed hands -- it would be very hard for them to upset the market selling gradually. In addition, they're generating at least $4 billion in operating cash flow each quarter, which would support a lot of debt at a low rating.
Finally, they could issue stock. Free cash flow is not the issue.
You just can't take billions of dollars in investments out without proper planning. Just because they can cash out doesn't mean that is a great idea. They would have nothing in reserves. One of the founders of Microsoft, Paul Allen was really big on having reserves that they would not spend and I would be suprised if that attitude didn't still prevail today.
Yahoo doesn't throw of enough cash either. Microsoft would have to fire half of Yahoo's employees (think Compaq computers), which would cause customers to run for the hills expecting the worst to happen to customer service and other functions.
Yahoo right now is just too expensive for MS.
Or is it simply that Microsoft has held a very lucrative monopoly position for many years and just makes more money than it knows what to do with? I.e., perhaps its habit of keeping large cash reserves are just an effect of its success and not any kind of cause of it?
The reason I pose the question is that I have been forming a layman's theory that in fact it is all about the cash, even as much for a huge company as it is for a small mom and pop store; that as long as a company has cash on hand it can go on, and when it runs out of cash the end is coming even if it takes years in a downhill slide. If you take corruption as a given, I suspect that all the accoutrements of big-company strategies like pursuing growth over profitability, borrowing money to run at a loss, etc., are nothing more than smokescreen thrown up by upper management to make it look like they're doing a good job when they're really bleeding the company. Rather than being a waste of resources, I rather wonder if keeping a large cash reserve is like a protective armor to keep a company from having to borrow at interest during rough periods. Is this completely off the mark?