Battered Yahoo Admits It Overplayed Hand; Open To New Microsoft Talks
Why the backtrack?
Because Yahoo employees and shareholders are dismayed by the collapse of the deal. Because, as Chairman Roy Bostock made clear in a WSJ article, $37 wasn't a carefully calculated take-it-or-leave-it price--it was just a finger-in-the-wind gambit to pry some more cash out of Microsoft. Because Yahoo and Jerry are now getting blasted publicly by their largest shareholder, who happens to be one of the most respected institutional investors in the world. WSJ:
"I'm extremely disappointed in Jerry Yang," said Gordon Crawford, a portfolio manager at Capital Research Global Investors, which owns over 6% of Yahoo's shares. "I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."
It's evident that most shareholders would have been perfectly happy with a transaction in the $34 range," said Mr. Crawford. The concern owned over 16% of Yahoo's shares according to the latest available regulatory filings, making it Yahoo's largest shareholder.
For those who don't know, Gordie Crawford is a legend. He's also not the type to blab to the press just for the sake of seeing his name in print. And the quotes above are just what he told the WSJ. Here are the comments he made to the New York Times:
“I am extremely angry at Jerry Yang and at the so-called independent board,” said Gordon Crawford, portfolio manager for Capital Research Global Investors...
Mr. Crawford questioned a statement from Mr. Bostock in which he said the company was pleased that so many shareholders had supported its position.
“I would love to know who these shareholders are,” Mr. Crawford said. “It’s none of the ones that I talked to today. Everybody I talked to would have sold their stock at $34.”
“I’m hoping that there is such an outpouring of outrage that the board is embarrassed into revisiting this thing,” Mr. Crawford added, “but I’m not optimistic about that.”
If Jerry isn't seriously regretting the position he took on this deal, he should be.
Meanwhile, here's how Yahoo Chairman Roy Bostock explained the thinking behind the $37 demand that ultimately caused Steve Ballmer to take a hike:
"In the final analysis the independent directors of the board had to make a determination of what our position would be when we put the first price on the table," [Bostock said]... "We said, considering all of these hard data, what we should do is say we think a fair value for the company is $37. It was not a take-it-or-leave it statement."
In other words, it was just a gambit--which Roy, Jerry et al, expected Steve would quickly counter with a bid of, say, $34-$35 because he was so desperate to buy Yahoo. Oops.
And so much for Yahoo's previous position that Microsoft's bid "substantially undervalued" the company. If Microsoft was at $33 and $37 was just a number Yahoo tossed out there to get the negotiations started, it seems the "substantial undervaluation" amounted to about a dollar a share.
Having gotten its fanny spanked, Yahoo seems to finally be getting religion. Jerry, for example, has told Reuters that he's open to new Microsoft talks: "If they have anything new to say... I am more than willing to listen."
Yahoo's unofficial asking price is now not $37 but about $34. It will be interesting to see how much more punishment Jerry and the board will take before Jerry goes from being "willing to listen" to picking up the phone and calling Steve.
If Microsoft is smart they'll wait for YHOO to report Q2 (which I think will be a dreadful quarter) and then give Jerry a call.
Look, I know he's a billionaire and all, but you don't necessarily call a lottery winner a genius, and some lottery winners are tools. I'm talking about Mr. Yang, BTW...
Now again duuuhhhhh we made a mistake, enough, what a bozo who has no business being the Captain of the YAHOO SHIP. Come on Bostock get in there, as the saying goes “don’t send a boy in to do a man’s job!!!!’
But Henry, you have to write about the main reason why Ballmer surprised everyone by pulling the bid: super short interest in MSFT stock.
I'm not really buying this one bit though. It would be ok if these were two hillbillies engaged in a baseball card dispute on eBay but for Pete's sake these are guys that had access to the top M&A talent money can buy!!!
Do you really want us to believe that Yahoo meant $37 was their first counter and Microsoft mistook it for their final!
An honest mistake, talks back on let's make this deal happen and we'll throw in free floor mats and a license plate decal.
Gimme a break....
I am sure the media will play its part by providing rumors/ personal thoughts and finally, we find ourselves close to MS new FY year with our dead money...
Good for you Mr. Yang
Your headline may read 'Battered Yahoo...' - but the company is certainly not behaving like one.
Yahoo just filed its date for the annual board meeting - activist investors can file their slate by may 15th. Time for those investors to call on the MSFT proposed slate!
Jerry Yang = Loser
Jerry Yang runs his Yahoo POS like Chairman Hu runs his Red China
Several, Henry included I believe, predicted a fast announcement on the meeting so that shareholders would have limited time to organize. BTW, great post HB.
Note to Jerry, with your tens of millions buy a nice yacht based off Miami, hire a crew, invite some babes aboard and set sail for a few months.
If you need help negotiating a price for the ship I'll give you a hand.
:-)
Whatever happened to reporters questioning their sources? Of course Gordon Crawford is teed off. He made a dumb short-term bet (that YHOO would sell) and lost.
Yang and Ballmer are equal geniuses here - they both understand Yahoo will double in value within the next 5 years. Yang did the right thing, except for the tiny detail that the shareholders are not behind him.
It's the shareholders that are greedy and want to exit now, for a few points extra. This merger is nothing good for anyone.
Just like people were calling the Google guys idiots for not running after Semel with a cheaper price tag, when he pulled his 3 Billion offer.
I didn't believe you. I even looked it up in the search engines thinking "surely this guy is full of sh#t" - but it's true - Terry Semel blew an incredibly sweet Google deal - given Google's market cap these days.
I just can't believe it. How much that would have changed how everything is today can't even be adequately described - there just aren't words for an error that colossal. Thanks for pointing that bit of history out - really - I may never have known it otherwise.
You call Yang a genius?????????? Yahoo was nothing but a flash in the pan. They have mediocre engineers, substandard management and Jerry Yang to lead them to disasteristan. Seriously, your boy genius evaporated 14Billion in value for shareholders just to hold on to power. He is no Iococa, He is no Ballmer, He is no Jack Welch, He is no Buffet, He is no nothing.
Ballmer and Microsofties are the real geniuses of this generation. With out Windows,Gates and Ballmer you never would have seen Internet adopted the way it has been.
Ballmer is great!
Ballmer is great!
Ballmer knows the real value of a crap like Yahoo
Ballmer will never act out of emotion to hinder MS.
Ballmer might buy Facebook (80% chance)
Ballmer might buy AOL (20% chance)
Ballmer is a math major who knows his numbers and can beat Jerry in arithmetic 10-0.
Yahoo could easily bring itself back to $40 a share if it increased revenues (used Google) and cut expenses (fired its ad team).
Henry, you really should do an analysis to show how Yahoo could improve cash-flow under the Google matchup.
All this bellyaching about how Yang should have gone with Ballmer is pathetic.
Guess it's Platform-Y!
Henry, I don't give a flying *&&k that he is a "legend". He's just a greedy bastard like everyone else. If he would have been happy with $34, why didn't he open his mouth. Is he mute? He's a big shareholder, the board would have taken his input. Now, I'm not saying he didn't give his input, but from what I've seen and read, we haven't heard from this guy until today. Where the hell was he?
You know what, even if the deal went through, I bet those same a$$holes at Research Capital would have bitch about the deal at $34 saying YHOO could have gotten more.
Another thing, it seems to me MSFT was looking for an exit and once they threw out the $37, Ballmer saw that as an opportunity to bail. It almost sounds like Ballmer was looking for any excuse to drop the bid. What kind of negotiator is that? Just because someone doesn't agree with you right away, you'll just walk away? Sound like a 3rd grader to me.
Sorry for the rant, I just checked my brokerage account and saw how much money I lost today. Jerry and Steve, grow up..put your silly pride aside and get it done.
MSFT was a real chance for us to finally make Google's life a little tough. I think most of my colleagues feel the same way.
Heck, most of us would be happy to see our option worth something again. At least that would give us a reason to get our asses out of bed in the morning.
The real reason why Yahoo is suffering is because the ranks and file like myself feel the only people making any money at Yahoo are the executives. Don't get me wrong, I don't mind executive making money, but when they're rolling in millions while everyone else is suffering to pay their bills, this creates resentment. This in turn results in lack of productivity.
I imagine most employees are asking themselves if it is worth it to stay. If this continues, most will leave.
Only thing I would like to add is that YHOO should also explore the deal with GOOG and see how the market reacts to that. It has to be done soon in order to keep YHOO stock from drifting lower and have some leverage when negotiating with MSFT.
April 26th comment1:
Rav: [E]veryone is assuming that if MSFT walks, Yahoo goes under 20, with no opinions to the contrary. They don’t seem to realize that Yahoo shares now have MSFT put (similar to the Greenspan put). No one will believe that MSFT is going to walk for real and for ever. YHOO may go down 2-3 bucks, but then will attract lot of new stock buyers, because MSFT is eventually going to come back.
Rav said: (comment2)
Apr. 26, 2:31 PM
I think MSFT goal is to acquire YHOO at <= $35 in a friendly deal. Its simply not worth that much if they have to go hostile. In fact it may not be even worth a few bucks lower, if they have to go hostile, due to all the negatives that come out of the hostile deal like uncertainty, employee churn, distraction etc. Its possible that Yahoo management may adopt a scorched earth policy if they see a hostile deal winning.
As joeblow explained above a +/- 10% is not a big deal for MSFT considering their financial condition and how desperate they are for YHOO. They have all along been trying to get a friendly deal, so I doubt they would go hostile at this point. Also I believe that Yang won't accept anything below $40 for a friendly deal, which MSFT can't afford due to the negative effect on its stock. I think the most likely outcome at the end of this weekend, would be that MSFT would pretend to walk, just to see the effect on YHOO stock. After a few weeks of this pretension, if YHOO stock goes down significantly, they will come back with a hostile $31 offer. If YHOO stock remains unchanged or goes up (I know, very few people believe in this scenerio, but its likely in my opinion, depending on market conditions), then they will complete a friendly deal with Yang in the $35 - $40 range. They would have a good justification and a stronger stock for this at that point.
Steven A. Ballmer, Microsoft’s chief executive, cited the proposed Google partnership as the main reason for not pursuing a hostile bid and instead walking away on Saturday. -- NYTimes
Aside from the regulatory hurdles I cannot fathom why Yahoo doesn't do the deal. They could command 100% of earnings from Google and the same time massively reduce the costs of managing their own system.
In re the regulatory hurdles it appears both Yang and Schmidt thought of that with their innovate open auction system. Of course, it would always be Google that had the most profitable ad, but the openness would help the deal get through Congress.
Yes, some Yahoo employees are going to be sore about capitulating, but suck it up guys. You lost. Your technology is second fiddle. Get back to working on the stuff you're good and and acknowledge your failure in ads. It's the constant fixation with trying to produce a workable system in ads that has caused your demise. Imagine how much better your website would be if all those engineering man hours had been spent on making the website a more attractive place to visit?
I think YHOO and MSFT's obsession with focusing on search growth and monetization for years is not leading them anywhere. Those resources can be better utilized in creating new products and categories. MSFT XBOX stands out as a good example. Imagine if AAPL would have just focused on improving MACs and competing with dell/HP/lenovo in PC space, where would it be today? They succeeded because they created new categories with IPOD followed by IPHONE. In other words, attack (in a new category) is a better defence.
I'm not too concerned about regulatory hurdles with GOOG and YHOO deal, because based on the press reports, it sounds like the DOJ representatives are also in the loop. So whatever deal they come up with, should hopefully be kosher as far as the anti-trust rules are concerned.
the only part i'm not sure iagree with is the 'get it done part'....unless your talking about execution within yahoo.
What I read from today's action is that the market was NOT at all favorable to msft walking from this deal. I was quite shocked. I thought it was a huge positive for msft but apparently it wasn't. I expected at least $2/share increase.
Again, I wonder, I know what a favorable deal is for yhoo but what is the favorable situation for msft?
They walk -- it's negative (based on today's action)
They do the deal at $33+/share -- it's got to be a negative
They do the deal at <$30/share -- is that the only positive??
Msft will beat their FY09 and FY10 EPS estimates with or without yhoo (barring a severely declining WORLD economy). This war with goog is completely overhyped by the press. Yeah, it exists but not to the point where msft misses EPS. There's absolutely no evidence that will happen -- it's all driven by people's emotional hatred for msft.
I like to hear some good unemotional analysis please.
For those of you who are against the deal at any price, it won't make any sense or convince you of anything. You're like Henry, hostile to the deal itself.
For those of you who believe the deal should have closed at some price, it will make all the more sense.
The final negotiations failed only because the participants, even though billionaires and very accomplished and creative professionals, were there with differing understandings of what the final negotiation was all about.
The parties could have closed Saturday if they'd been represented by dispassionate negotiators.
In the final analysis, the deal can be closed now, within hours or at most days. It's still in both MSFT's and Yahoo's best interests to close this deal. Both parties know it unequivocally, and if Yang had any misconceptions about shareholder "price level support," then he shouldn't now have any even slight confusion.
However, I'd say to Mr. Crawford at Cap Res Global: It was Ballmer that burned you, not Yang. You bought the last wad of Yahoo because Ballmer projected an image of there being nothing on the face of the earth that would stop him from having Yahoo, not Yang... not his board... not the nominations... not a proxy fight... not the delayed annual meeting... not even having to fight in Delaware Chancery Court... not the conduct of a hostile tender (after a near guarantee imposed with a deadline, no less) - in short Ballmer wrote in stone that nothing would prevent MSFT from having Yahoo and he'd already bid at least 31 (conventionally viewed). And then Ballmer double-crossed you Saturday, all because of ego and his crybaby hurt feelings.
Both sides had build up too much emotion heading into final negotiations. MSFT had been blustery, aggressive and demanding, even to threats. Yahoo had been quiet, pensive, determined and stonewalling.
Both sides should understand the other side's perspective now and be ready to bridge the gap.
If both of them are capable of putting aside their egos and emotions for the benefit of their shareholders, it could happen before next suppertime P.S.T.
Ballmer and Liddell should just look to MSFT's stock reaction on Monday to the "walk" news from Saturday. That should tell them the market thinks it was a mistake to walk.
I saw your post late or I'd have included a response to you in my last post.
I think Ballmer had managed to get to the point with MSFT's stockholders that almost everyone on the planet and in the m-a-r-k-e-t had discounted MSFT's final offer being in the mid-30s.
My guess is that MSFT's stock (all other unrelated things/market events held constant) might've behaved like this on the announcement of a final deal:
-Deal at: (MSFT reaction)
31 or less (up significantly)
32-34 (up very modestly)
>34 but 36 (increasingly negative beyond 36)
*Sorry but I couldn't edit my error, this is better*
31 or less (up significantly) 5% or more.
32-34 (up very modestly) 1-3% inversely.
>34 but 36 (increasingly negative beyond 36)
Beginning at 37, it would've tumbled maybe 5% or more.
I can not figure my **computer**, because it won't take what I write for some reason.
My third listing was intended to mean: Greater than 34 but not over 36.
Those who pulled the plug before the title nose dives and those who didn't.
And again apparently those who didn't couldn't even. Sad.
At least MSFT's bid has been a wealthy opportunity for some people. Not the wealthiest, which is rather unusual.
You know what's the main trouble, Jerry? Among billionaires most are heirs and very few are true entrepreneurs, you know, those genuine people who make a hundred bucks out of only one and thus only with brain and hard work.
And, talking about those who've never been such and who'll probably never be, the trouble is:
They don't even understand the language you talk, it's Chinese (the entrepreneur language I mean) for them.
OK what we heard today probably came out of your mouth but very likely was engineered by other smart people. I just don't buy it.
You're smokin' sumpin' funny if you think it was Yang that overplayed.
Go back and read Yahoo's response to Ballmer's deadline epistle, and it'll bring forth the correct context and affirm what Yang is saying... for anybody with any sense and understanding of the forensics of unraveled communications.
Yahoo is saying in the press that Ballmer offered 31 and Yahoo countered with 40.
Then Yahoo moved progressively and unilaterally to 37, all in the face of a blustery Ballmer steadfastly refusing to "raise the bid" while he was constantly in the press bombing them in every way possible, including the hit man fire-bomb that MSFT dropped through Jim Goldman on a Friday thin after-market.
Yahoo was negotiating, but just not making everything they said for PUBLIC consumption. Ballmer wanted them to bend publicly to his will and they wouldn't do it. Just like Ballmer said he wouldn't raise the bid until they came to the table, they were telling him, "We've done all we can to 37, but that's it until you are willing to acknowledge a requirement to pay us more than 31."
To his credit, Ballmer finally did that, but reluctantly and without clarification of terms, and then he tried to railroad Yang and Filo at the final meeting into something like "a couple more dollars" without any definitive terms accompanying the offer.
It was MSFT that failed to honor its press-leaked promise to raise the bid.
You'll note that they even remarked in the dealine letter response to Ballmer that Ballmer could've done more than being a table lamp at any of "at least two" meetings they had. Remember from the letter (prphrz) "Steve, you were there in at least two meetings and you could've advanced the talks in any way you wished."
I believe her. I believe Yang. I believe Bostock and Yahoo. Ballmer never raised the bid in any clearly definitive way beyond the initial proposal on Feb 1. If something is worth saying in something so important as this merger would be, then it's worth writing down. Decker isn't saying the deal could have closed at 33 (yes or no) - she's just disputing MSFT's claim that it raised it to 33.
BTW, if you MSFT people are paying attention – She’s giving you yet another signal that the time is ripe for the deal. You can get it done and heading for regulatory approval in just hours or days, unless you’re pig-headed and dumb. I just think you’ll need to send somebody with a greater sense of diplomacy this time.
Using mathamatics, i figure $1 a share to be quite a substantial amount of money.
Just saying.
Though we really did try to make it
Something inside has died and I can't hide
And I just can't fake it
It's nice to see you.
I hope for your sake and mine (long all kinds of calls and leaps on both stocks) that Ballmer un-walks his ass over to the table like an adult, instead of a cryin' ass baby... and gets this thing done.
My guess is that at a fair interpretation by the market of price terms, MSFT might just go up.
WTF do you want?
He's all but apologized for the failure to communicate, even when you were the one that ran:
http://www.nytimes.com/2008/05/06/technology/06yang.html?_r=1&ref=business&oref=slogin
-He's ready and receptive to a deal.
-He's holding off the Google thing.
-The high-five crap was mythology, as is much that the Pundinistas write.
It's right there, Ballmer... right there, hangin' and ready to pick.
You get the platforms... the scale... the Yahoo board to lift the poison... you get Yang on board... you get the employees on board.
You get everything you wanted before you pouted off to whine about getting your widdy-biddy feelings hurt.
Bring your ball back, Ballmer. We can still play. Mommy'll call you when it's supper time.
For all of you who over-analyzed the walk, keep in mind one thing: Yang and BOD NEVER intended to sell for any price, not $33, not $34, not even at $37.
The only reason they're scrambling ass-over-teakettle is because of the widespread reaction and condemnation of their actions.
The reason Y! stock isn't in the teens yet and why MS's is where it's at, is because everyone is still expecting-- no, HOPING-- that MS comes back and seals the deal.
I've said it before and I'll say it again: All those 'Ballmer did this,' or 'Ballmer did that' people, puhleeze-- they wanted Y! bad but were smart enough not to let their emotions get in the way. Something you cannot say about Yang.
Swallow hard and accept the fact that Yang effed this one up real good.
I haven't entirely said that Yang and Filo are blameless.
Yang could pick up the phone and get the deal done today as well.
If he understands the part of the negotiation that he himself contributed confusion about, he will pick up the phone.
I think MSFT did more than their share of the miles during the last 3 months. Yang should fire up the Yodeling Crop Duster and head up to see Ballmer.
I saw, if you are really interested in the deal, it should not take 3 months, and Yahoo looking at other options and deals to fend of MSFT. It sounds like yes, Yang and Balmer have huge egos, but Yang went a bit overboard. And Balmer played it well.
Neither Sergei & Larry nor Jeffrey were going to part with their companies for anything close those prices.
---
jen @ firenzedascoprire