Yahoo Board May Decide on Microsoft Today
TechCrunch reports that Yahoo has scheduled a special board meeting this afternoon to decide the company's fate. TechCrunch's Mike Arrington believes, as we do, that that "fate" will ultimately be to do the deal with Microsoft, but a core group of Yahoos are expected to stump for an emergency search deal with Google as a way of fighting off the takeover.
We still don't understand how outsourcing search to Google will make Microsoft back off, but hope apparently springs eternal. We think the only thing that will make Microsoft back off is Microsoft's shareholders frustration at the deal, which is pummeling Microsoft's stock price. The latter will almost certainly limit Microsoft's ability to increase its offer--something that some Yahoo investors and arbs seem to be counting on.
Mike provides an overview of Citi analyst Mark Mahaney's analysis of the potential benefits of a search-outsourcing deal. Specifically, that it would add 25% to Yahoo's short-term cash flow from increased revenue and cost cuts and that this could add $5 to Yahoo's pre-offer share price. Unfortunately, assuming these estimates are correct, that would still leave the stock about $5 below Microsoft's take-out price. Mike also thinks such a deal would result in the firing of nearly 4,000 Yahoo employees and might hobble the company's long-term value.
We've said it before, and we'll say it again: If outsourcing search to Google will increase Yahoo's net present value, management should have done it long ago. If outsourcing search to Google is just a forced, emergency attempt to fight off the takeover--a short-term benefit now in exchange for a long-term liability--we think Yahoo should just bite the bullet and sit down with Microsoft.
Ultimately, Jerry & Co. are going to have to persuade us, Yahoo shareholders, that a Google search deal will not just make Microsoft go away (doubtful, in our opinion) but is in the best interests of the company. And as soon as the latter words come out, our question for Jerry will be, "Then why didn't you do it earlier?"
Click here for more on Yahoo's three choices
Update: Don't expecct a decision today, says Kara Swisher: The Yahoo board is meeting via teleconference today, then reconvening in person on Wednesday.
See Also:
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So assuming that the stock price would go up, the market at least thinks it is in Yahoo's long term interest to make the deal. I agree that management has looked at the decision before and decided it is not in Yahoo's long term interest, so the question is whether the Yahoo executives or the market have a better idea of what Yahoo should do. Arguments could be made either way, but there is at least a question about whether a google deal is value creating or value destroying.