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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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Pride and Seinfeld
By samuraiBX on 6/13/2008 1:29:52 PM , Rating: 2
If you're a stockholder, you want your CEO to be like Seinfeld.

First off, I'm not saying I could replicate Yang's meteoric rise. But pride in your abilities seems to be the best means of getting on the quick trip on the rise and fall track. I'm naming some of my personal favorite athletes because I respect their careers but we can agree they stayed in too long and let pride rule them; Muhammad Ali, Michael Jordan and Dan Marino come to mind. Think about how great they were at the absolute top of their games; each let pride lure them into further attempts to go that one extra time to the well and bring out another moment of greatness.

Seinfeld called it quits when he was at his high point with his show; he left us hanging and wanting more, but kept his record by ending at the top. Stockholders purchase stock with the belief and right that the upper management will pursue the best interests of the stockholders and leave their personal issues off the table and leave when they don't add anything to the organization.

I'm not saying I think Yang meant to do it, but the shareholders have very compelling evidence that they were second place to upper managements' pride. I'm willing to vote against Yang, though I respect his prior successes. But, putting it the best way I know how; I'd rather watch MJ's top ten dunks and old games on ESPN Classic any day then watch his games with the Wizards any day. Yang needs to hang up the spurs.

RE: Pride and Seinfeld
By TETRONG on 6/13/2008 6:26:10 PM , Rating: 2
Again, if you don't like the companies strategies don't invest.

RE: Pride and Seinfeld
By TomZ on 6/13/2008 7:25:34 PM , Rating: 2
I guess you're right, and it's also why you see so many shares of Yahoo dumped into the market the past couple of days.

RE: Pride and Seinfeld
By namechamps on 6/16/2008 9:48:05 PM , Rating: 2
How should a shareholder know their CEO is going to make likely the worst business move of the decade and shed $26 billion (that's with a B not million) of shareholder equity.

They won't but not that they have seen it they will use their votes to kick him to the curb to ensure he doesn't do it again.

Yahoo isn't Yang's company. Yang and his buddies made a personal decision to go PUBLIC to raise hundreds of millions of dollars (and personally turn themselves into billionaires overnight). In return shareholders expect officers and the board to make decision based on ONE PRINCIPLE ABOVE ALL ELSE.

DO WHAT IS BEST FOR SHAREHOLDERS. On this important axiom Yang and the board failed. They let pride (pride plus $5 will get you a coffee at starbucks) lead them to the wrong decision.

Look at it another way. Yang's estimated compensation for 2008 is $100 million. He will get paid $100 million to LOSE $26 billion worth of shareholder wealth. At best it likely will take the company 3-4 years to get back to where they could have been before they dropped the deal.

Even worse you have to look long term can YAHOO grow faster than MSFT and overcome the $26 billion whole Yang dug. Simple answer is No. Yahoo is no longer growing that fast. Shareholder's will never see that wealth returned. Their value may go up but it will always be less than what it "could have been" had Yang made right decision.

BTW: I made money shorting YHOO durring this fiasco so it helped me. The point still remains Yang & company put their personal feeling & pride ahead of their shareholders.

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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