Yahoo (YHOO) To Microsoft (MSFT): Please, Buy Us
Jerry at the D conference last Wednesday:
"From day one, we've always said we're open to a transaction. That's been public, and we mean it." So price is the issue, right? "I think that's the most public issue." but other issues, including regulatory and "a number of other things" and I don't think we had enough discussions about "other things" to make me feel that we had enough things in place even if we agreed on price.
And some "people familiar with the matter" quoted in the WSJ the next day:
Yahoo's management and board would be receptive to a new, full-company offer from Microsoft but have no indication that the software company is interested in making a fresh approach, the people said.
And today, via BusinessWeek, an explanation of "Why Yahoo's Yang is Holding Out", which cites "analysts, sources close to Yahoo, and people who know Yang":
The overriding reason for the board's four-month-long-and-counting holdout against Microsoft's offers is simple, according to people familiar with Yahoo's thinking, who insist neither Yang nor the board is inalterably opposed to a deal: The company wants more money. But what that means is more complicated than merely asking Microsoft to bump up its offer by a couple dollars a share...
For one, say these people, Yahoo seeks some hedge against regulatory hurdles that could delay or even quash the deal. if regulaSuch issues could take a year or more to work out... and if regulators quash the deal, Yahoo could be left crippled.
Moreover, Yahoo is looking for some certainty that the value of the deal will hold, people say. Given that Microsoft's original bid was half-cash and half-stock, the transaction's value is subject to movements in Microsoft's stock. As Microsoft's share price dropped amid concern over the challenges of integrating so large a target, so did the value of the deal—by several billion dollars.
And here's Sue Decker at Digital Hollywood this morning, via SAI's Michael Learmonth:
Price is the first variable board has to entertain. But there is also certainty of value and certainty of closing. There are a whole host of issues that were not discussed because we did not get through the price door.
All reasonable concerns, some of which could have been hammered out in the weeks following Steve Ballmer's bear-hug bid, via actual negotiations. Instead, Jerry and company bolted the doors and frantically tried to keep Microsoft at bay: Adopting a poison pill comp plan, reaching out to would-be white knights like News Corp., trying to pull off a hail mary search pact with Google. And now that Ballmer has walked away, it's going to be awfully difficult to claw back any additional concessions.
By saying that msft will play this out to the end and then pick up the pieces at bargain basement prices is saying that Microsoft will be 'Penny wise and Dollar foolish' by betting that Icahn will roll over and give it away. Icahn has shown patience in the past as is not afraid of long fights, plus their are plenty of able people ready and willing to extract the VALUE at Yahoo.
It will not get to that, Wake up and smell the coffee....It's a brewing.
http://www.sec.gov/Archives/edgar/data/921669/000092847508000200/0000928475-08-000200.txt
Seems like Icahn is pressuring YHOO board to take off the poison pill.
I work in recruiting. I had several Yahoos interested in leaving once they learned of the Microsoft offer. We were drafting resumes and cover letters.
Once they learned about the Employee Retention Plan (with its 100% vesting), to a person, they were no longer interested in leaving.
Overnight, people went from drafting resumes to getting back to work.
Maybe the Plan is too generous? There might be something to that. Perhaps 100% vesting is too much. Perhaps only key employees should get vesting of some amount less than 100%. Maybe only key employees should be covered by the Plan. It is legitimate to claim that the Plan is overbroad.
But to claim that the Plan is a poison pill? That reveals a basic misunderstanding of the difference between attempting to block a takeover and attempting to retain employees.
Rav said:
Jun. 04, 3:02 PM
Henry, as I mentioned earlier, the severance agreement or the poison pill, whatever we call it, applies to all full-time employees in YHOO, not just the top executives. Also from the YHOO sec filing yesterday, this poison pill would get triggered even if Icahn takes control of the board (i.e >=5 board members). So it would be difficult for Icahn to rally support for his slate, with the "change in control" provisions that guarantee significant benefits to _ALL_ fulltime employees of YHOO. MSM seems to miss this point.
Icahn's letter sounds like a ploy to get rid of this change in control provision, so that its easier for him to rally support for a proxy fight. I can't imagine big shareholders supporting Icahn's slate unless the new change in control provisions are taken out by the current YHOO BOD. Based on the history so far, its going to be an uphill battle for Icahn trying to get YHOO BOD to take off the provisions without a stronger and well-defined offer from MSFT. MSFT could offer a better offer conditional on YHOO taking off those provisions. But considering the beating its stock has taken so far, this is very unlikely.
YHOO can respond to Icahn letter saying that they are just trying to retain and attract employees with these new change in control provisions - considering that MSFT's offer has caused significant uncertainty as to the future direction of the company.
From YHOO's filing: "The Change in Control Severance Plans are designed, in light of the uncertainty caused by the Microsoft proposal, to help retain the Company’s employees, maintain a stable work environment and provide certain economic benefits to the employees in the event their employment is actually or constructively terminated in connection with a change in control of the Company."
I think this is all part of the dance that must continue but at this point Yahoo knows what they have to do and they are going to do it. The release of the documents by the court sealed the deal leaving them no time to come up with alternatives to appease shareholders while leaving them in the dark as to the 007 device they had set off.
Mike, if you tell your employees that Microsoft has earmarked 1.3Billion for retention don't you think that would have stopped the exodus?
They say they have earmarked $1.4bn. What guarantees have they given?
Seriously, I would like to hear this. I counsel people on important career decisions. If Microsoft has written a memo indicating who will be retained; whether the Santa Monica and/or Burbank offices will be closed; whether employees will be required to relocated; and whether and to what extent non-search properties will be sold off, please let me know. Send me the memo. I'm sure Blodget would love to see it, too.
Also, if Microsoft is already willing to spend $1.4bn to retain employees, isn't the complaint that the Plan is "too expensive" a limp argument?
The $2.5bn estimates being thrown around would only apply if Microsoft came in and fired everyone covered under the Plan. Everyone. If Microsoft intends to retain employees, the Plan would not cost anything near $2.5bn.
You might argue that Microsoft wants to make the decision about whom to retain. Great, make that argument. But the argument about cost is either disingenuous or is just evidence that people making it haven't read the Plan.
Of course, that people are arguing "cost" instead of "Let Microsoft decide" exactly proves my point. People working at Yahoo! do not trust Microsoft to decide. They want some assurances. The Plan gives them that assurance.
It might be an overly generous Plan. But there is no doubt that without it, many Yahoos would have already left. (And I'd have made quite a nice pocketful of money, too, helping them find positions!)
Coming from Microsoft?
Gimme a break!
If you were a Yahoo! employee, would you risk your job on Microsoft's vague assertions that it had a "retention plan"?
I sure wouldn't. And based on the flurry of calls I received pre-Plan, I don't think many Yahoos! would, either.
Also, whilst the plan ensures the employees stay on for now, the 100% vesting condition does not gaurantee that the employees wont cash in and walk out after the takeover.
He repeatedly used the word shenanigans to describe Yang/Yahoo's actions on Fast Money last night. Awesome.