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Yahoo CEO Jerry Yang
Yahoo searches for answers as it runs out of options, makes deal with Google

Yahoo announced grimly on Friday that talks with Microsoft were over.  According to Yahoo at a secret Sunday meeting Microsoft "unequivocally" rejected the idea of buying the whole company and tried instead to push for Yahoo to sell it just its search portal.  Interestingly, Microsoft appears to believe the search portal is worth more than the company as a whole, at least to its interests.  Yahoo, however, clung to the belief that its search portal, second on the internet to rival Google, was too valuable to sell piecemeal. 

The news of talks ending sent shares sinking like a stone in the sea, down over two and a half dollars to finish at $23.52.  To put this in context, Microsoft publicly offered Yahoo $33 a share.  Yahoo demanded $37 a share, saying Microsoft proposal "significantly undervalued" it. 

It has since come out that the faceoff occurred at a Seattle airport on May 3, between Yahoo CEO Jerry Yang and Microsoft CEO Steve Ballmer.  Yang allegedly demanded more money and Ballmer balked at the demand.  This exchange reiterated Yahoo's penchant for a rather vainglorious vision of self-worth, which it has held throughout much of the talks while showing little ability to justify it.

Standard and Poor's equity analyst Scott Kessler puts it aptly, saying, "If you are a Yahoo! shareholder, you just have to be scratching your head right now."

Perhaps more shocking, according to a recent lawsuit filed by shareholders Ballmer later would go on to make an offer of $40 a share -- nearly a hundred percent premium at the current share price.  According to the lawsuit, Yang and Yahoo Board Chairman Roy Bostock intentionally sabotaged the deal, and were not interested in selling the company at any price.  These claims have yet to be proved or disproved in a court of law.

The end of talks and Yahoo's failing stock is especially bad news for Yang and Bostock, as it puts investor Carl Icahn in prime position to sway already malcontent shareholders to his side when he attempts a takeover in the company's annual shareholder meeting, which Yahoo's management has pushed back to August.  If successful, Icahn is going to do a little late summer cleaning, ousting not only all the board, but also Yang, who he feels has been especially damaging to the company and its ability to deal.

A small hope still lies for Yahoo's top leadership in that Microsoft's complete rejection may bring into question whether Icahn's attempt to sell would have any more success.  Many analysts think that a great deal of whether the takeover bid succeeds depends on what kind of plan Icahn can bring to the table.  An optimal scenario for him would be if he came having already advanced in preliminary informal negotiations with Microsoft, while a not as promising scenario would be if he merely said talks would commence after the switch.

Icahn remained silent on the latest developments for the time being.

In yet another sign of slippage, Yahoo is trying to regain composure after the failure by announcing a deal with Google.  After a test run with Google showed that using Google advertising next to Yahoo search results would significantly up revenue, Yahoo is eager to make a deal with Google.  The deal, if it passes antitrust scrutiny is estimated to bring in about $800M USD extra revenue for Yahoo in the next 12 months.

Google's top executives were quick to praise the deal.  Cofounder Sergey Brin said, "I am happy to be helping them to stay independent."

And his fellow cofounder Larry Page added, "Having more money is a good thing."

However, beneath the rhetoric, the fact remains that coming to Google is a major concession, and will likely forever put Yahoo at second place, at best, in a critical element of the search engine business -- advertising.  While a Microsoft-Yahoo conglomeration, might have dreamed of taking on Google, the Yahoo of today, selling parts of its business to Google, has little chance of holding such hopes.  The latest developments only bring more uncertainty and drama to the unfolding story of the struggling company that was once the internet's top search engine.

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RE: Love it.
By masher2 on 6/13/2008 12:15:43 PM , Rating: 3
> "do you really think he cares about his day-to-day paycheck? The man is worth billions."

Yang isn't worth "billions". At current share prices, he's worth about $1.3B. I don't know his salary at present, but they were paying the past CEO something like $75M/year, plus a benefits package that brings the total close to $100M. That's a billion dollars a decade, by the way...not exactly chicken feed.

In any case, you're saying essentially the same thing I am. It's not just the salary that Yang covets, its the position itself, with the perks, prestige, and status that goes along with it.

RE: Love it.
By tmouse on 6/13/2008 12:33:11 PM , Rating: 2
He may not be worth that if they lose the shareholder lawsuit.

RE: Love it.
By MrBlastman on 6/13/08, Rating: 0
RE: Love it.
By TomZ on 6/13/2008 1:00:48 PM , Rating: 2
You talk a lot about human psyche and pride, but part of being a "management professional" is doing what is right, despite your personal feelings/whim/etc. Nobody wants someone with the maturity of a child running a billion-dollar company.

RE: Love it.
By MrBlastman on 6/13/2008 1:34:01 PM , Rating: 2
What he is doing is definately without any doubt not in the best interests of shareholders.

That doesn't make him a child though.

Why does it bother you so much, do you have stock in Yahoo _or_ Microsoft? I'm sitting back enjoying the soap opera.

RE: Love it.
By TomZ on 6/13/2008 1:44:03 PM , Rating: 2
I don't have a stake in either company. I am a fan of personal responsibility, and I can't understand why you are willing to give Yang a pass because of his ego problems. He's there to do a job, that's all. If he does it, great; if not, he needs to be shown the door.

RE: Love it.
By MrBlastman on 6/13/2008 1:53:13 PM , Rating: 2
I'm not giving him a pass. If I were a Yahoo shareholder I'd be upset.

He will get the door soon enough, or be granted his coffin to rot in. I am just trying to shed more light into the inner workings of his mind and why he is acting how he is.

The human angle, rather than the hard business facts.

Perhaps it is time for another chapter Days of our .COM's. :) (I'm eagerly waiting to see what will happen with Mr. Kahn, Yahoo and Yang. It is beginning to get quite juicy).

So until then, I'm watching all of this news like the soap opera that it really is.

RE: Love it.
By masher2 on 6/13/2008 1:47:54 PM , Rating: 2
We all have a stake in America. When CEO's abuse the system and destroy shareholder value, it ultimately hurts us all, whether or not we own shares in that particular company.

RE: Love it.
By Parhel on 6/13/2008 3:30:13 PM , Rating: 1
When CEO's abuse the system and destroy shareholder value, it ultimately hurts us all

That's true, but not relevant. He did nothing unethical. All this psychoanalyzing of Yang is hurting my head. We don't know that he made his decisions based on pride or emotion or foolhardiness. We just know that he's just made some really poor decisions. Not unethical, just shortsighted.

RE: Love it.
By Ringold on 6/13/2008 4:41:30 PM , Rating: 2
He did nothing unethical

Not honoring his fiduciary responsibility was unethical. If more people acted the way he does it would reduce confidence in the American equity markets.

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

He was too busy looking at his own interests.

I'll concede to Blastman above that he did show the ability to build a billion-dollar company, but he has just as clearly shown his inability to responsibly manage it now that it's public and the size that it is. If he didn't want to not be the uncontested owner, he shouldn't of taken peoples money in an IPO.

RE: Love it.
By TETRONG on 6/13/2008 6:04:56 PM , Rating: 2
The shareholders should have left the company if they don't like it's strategy.

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

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