Ever since Yahoo rejected Microsoft’s $31 a share offer to buy the company, the two sides have been gearing up for a prolonged fight over Yahoo’s fate. Microsoft is preparing to try to unseat Yahoo’s board members in a proxy battle that could cost as much as $30 million (which is still cheaper than raising its bid). Yahoo, for its part, amended its severance plan to cover all employees in case of a change in control of ownership. It includes accelerated vesting of options, continued severance pay of between four to 24 months of each employee’s base salary, plus $3,000 to $15,000 in outplacement services per laid-off employee. And there are going to be a lot of those after the merger. Henry Blodget estimates this severance plan alone will cost Microsoft an additional $1 and $3 billion, which pretty much wipes out the $1 billion in savings Microsoft thinks it can get from merging the two companies (i.e., by laying off redundant employees).
It is in Yahoo’s interest to keep fighting and adding poison pills to any takeover attempt. The longer this drags out, the more likely that Microsoft will raise its bid or lose heart. Could Microsoft already be rethinking its hostile-takeover strategy? It’s stock has taken a hit since it announced its bid and most of the press has been negative on the deal, pointing out the challenges of large mergers. The fact that this is a hostile attempt adds to the uncertainty. Hostile takeovers tend to work best when the targeted company has some hard assets that can be stripped and sold off or ripped apart and recombined in new ways.
That is not the case here. For this merger to work, Microsoft will need to retain the best employees (many of which are already fleeing Yahoo) and keep its customers happy. It can’t do that if it is preoccupied with merging two very different cultures and paying less attention to the Web properties that Yahoo’s business depends on. Of course, even if Microsoft loses its resolve, Yahoo would still need a strategy to compete.
- Yes, Hostile Takeovers Rarely Work in Tech
- No, The Deal Is Still Yahoo’s Best Option
Total Votes: 1842
Started: February 20, 2008
No.
No indeed.
Napoleon didn’t take Moscow. They should just take off and let the city burn to the ground. They could start a new Yahoo under another name, and MS would be crippled for years to come.
I’m not sure a hostile take over will work in Tech these days. A lot of people may leave yahoo! when it’s owned by MSFT but then again, where will they go? Google doesn’t have good Fantasy Football or Personals and other killer Yahoo! services
It would a business book case, afterwards
hmm, “Microsoft will need to retain the best employees (many of which are already fleeing Yahoo)”.
So if Microsoft persists for another month how many more might leave? What kind of shape will Yahoo be in then if MS does withdraw? How much less will MS be able to offer 4 months later?
There’s no need of loving to hate Microsoft — it is a great company.
Most definitely no.. would hate the day microsoft owned yahoo
Erick, it’s not as simple as
“It is in Yahoo’s interest to keep fighting and adding poison pills to any takeover attempt. The longer this drags out, the more likely that Microsoft will raise its bid or lose heart. ”
The board of directors has fiduciary duties to the stockholders that prevent taking defensive measures that are intended to thwart takeover attempts. In fact, once the company is the subject of hostile activity, the directors are held to a higher-than-usual standard (it’s the result of a cased called Unocal). So-called “Revlon Duties” also kick in that limit the defensive measures a board can enact.
@1, 7. Tell Netscape that.
If I were on that Yahoo board and I knew MS was trying to destroy the company, I would be gutting it as much as humanly possible, even if I owned stock. Leave the “Milton Waddams”’s of Yahoo there to fill the place and flea.
I do think Microsoft should give up..
A hostile takeover of this magnitude is not the answer to the success of Yahoo! and Microsoft for that matter.
Having said that , Yahoo! desperately needs to come up with a strategy to focus on monetizing the great properties that it has, and continue to gain market share from Google in the search arena. There are many other options that do not involve Y! being owned by MSFT.
Disclaimer: I’m a former Y! employee who really dislikes the thought of MSFT owning Y!, so my opinion is slightly biased.
@10 – business as usual, and as anyone would, to the limit of what the laws allow (and didn’t allow).. if Opera and Safari (and even the junky Firefox) can survive, it’s Netscape’s problem, not Microsoft’s.
Nice trick! This attempt has just begun. We’ll be talking about this dance for months to come.
shouldn’t the 2nd poll option be Microsoft and not Yahoo?
The board of directors has fiduciary duties to the stockholders that prevent taking defensive measures that are intended to thwart takeover attempts.
Is it just me or does it get really exciting when these things are happening. I know that may sound horrible, especially to the people/employees/share holders who get directly impacted.
For us to view from outside – it’s always interesting to see what business wits are produced and who can outsmart who.
Yahoo’s retaliation (in my opinion) was brilliant.
Either way, I do wish things were not so hostile!
- The Nick
If M$ withdraws, Y stock goes back in the shitter. Then watch the lawsuits roll in. Y knows this and it’s just another case of Yang arrogance. The stock didnt rise because of anything Yahoo did. M$ actually now controls the price of Y stock. Funny.
I have to admit, I don’t understand why MS wants Yahoo. The whole merger seems like a shot in the foot to me. For both companies.
Microsoft is less confidence in future Windows. When it comes to their survival, resistance is futile. They got the cash. I think at the end, they take over Yahoo.
“…Microsoft will need to retain the best employees (many of which are already fleeing Yahoo)…”
Cool, so they got to wreck Yahoo! without actually buying it.
I’m not sure MS has a choice. Its goal, from I can see (http://blog.kry...-enough-vs.html) is to sandbox Google to its #1 position as a search engine and force it to concentrate all its efforts to maintain that position. And to that end, Yahoo!’s destruction/purchase (I think it’s really the same) is but a stepping stone. Once MS is #2, which is their stated goal, they will be able to apply the appropriate pressure points. In that regard, what looks like Google’s only saving grace is to start fighting MS where it hurts and where it’s most difficult to fight MS: on their own turf.
Karim
Think about it this way -
If microsoft takes over at a good price then they win (microsoft says “Yay!”)
If not, then a lot of good people have left yahoo (microsoft – “Yay!”)
Yahoo now has to pay a lot more to lay off people (microsoft – “Yay!”)
Yahoo has been out of the game for a while (microsoft – “Yay!”)
Yahoo is hurt in general (microsoft – “Yay!”)
Since Yahoo is also a MSFT competitor, it seems MSFT should keep trying, especially if Yahoo keeps resisting so strongly, but only to further damage YHOO. As Erick pointed out, the takeover attempt has already badly damaged YHOO, causing many employees to flee. The longer the attempt is hanging out there, the more people will leave. The poison pills the board keeps creating will no doubt lead to shareholder lawsuits that will be costly and YHOO will likely lose or settle for large sums, not to mention increase their own costs and make them a less desirable acquisition candidate for anyone else. $30, $50 or even $200 million is a small price for MSFT to pay to inflict irreversible damage on YHOO. YHOO should have taken the excellent offer MSFT made and certainly should not have started implementing poison pills – really stupid and irresponsible. Instead they have put themselves in a position where it only makes sense for MSFT to slowly suck the life out of them while losing YHOO shareholders’ many billions of $s.
Microsoft should stick to its focus and cancel the bid:
Microsoft is a software engineering company / software publishing company. MS needs to focus on its core software products.
Yahoo is a media publishing company.
If I were a MS shareholder, I would bail out.
Moreover, MS won’t be allowed (anti-trust) to do anything with Yahoo in the sense of integrating the brand in Windows.
This seems like a headache for MS, and an interesting valuation of Yahoo, considering MS’ valuation of Facebook.
Nate
If I were SteveB, I would do the following:
1. Get Yahoo into a long fight so that
a) their best employees leave (MS can hire them directly perhaps)
b) they lose their focus off Search, Mail, IM and Portal and of course their display business
c) their shareholders get upset with them
d) their share tanks
2. Bail out of the deal within 90 days, declaring that MS has decided that given YHOO/Yang’s irrational and irresponsible behaviour, MS has no longer interest in Yahoo’s assets
3. Declare instead that MS has decided to invest 50% of that amount – $20B in its own assets: Windows Live, MSN and future services/brands (Silverlight, etc.)
Results
A. Yahoo’s tanking. MS will take over 2nd place.
B. Google loses the opportunity to partner with a sinking Yahoo.
C. MS shareholders become happy and send the stock skyrocketing.
Both companies are struggling, but any path I can see from here will end badly for all parties. I blogged about this earlier at http://jennifer...greenhouse.html.
Perhaps the whole thing was a ploy to get more of the key engineering resources at Yahoo to leave for Facebook and strengthen Microsoft’s investment there.
Erick –
While I agree that this will definitely hurt Microsoft in the near term, your analysis is not entirely correct here. Note that saying severance package cost of $1B-$3B wipes out the entire $1B in cost savings is not correct. The $1B+ savings is recurring, i.e. every year savings, not one-time. It’s impossible to assume when these severance packages will flow through, but you can be certain that they will all conclude by 24 months following closure of the deal…savings will remain $1B constant, assuming Microsoft actually gets these savings. Nonetheless I agree with most of what you say – it’s going to be near impossible for Yahoo to dig out of this hole.
Mike
@Andrew That’s what I thought
I do believe Microsoft would make Yahoo kick ass.
All these stupid measurd mean nothing if MSFT controls the board.
Yang will be out on his ass and all these poison pill maneuvers will be reversed.
to: folks who were just layed off from yahoo
subject: sorry, but the new severance package is not retroactive
Microsoft should merge with Google.
Yahoo may get distracted with all this take over attempts and lose focus on the business itself. Mugro$0ft is really a big bully.
heres a novel idea for some of those share holders. Stock is already above the “basic” offer MS made originally, since well, there share prices have fell. Go sell now, get out with almost 30.00 per share and call it a day, if you don’t, well thats your bad. People need to realize stock in tech companies is NOT a fast cash payday. They need to be looked in the long run. Y! is the number 1 web hoster in the united states with more then 1.5 million customers and growing. Y! is not just about search, when people get this through their heads and stop worrying so much about google, they will be better off.
M$ has already lost more than $44B in stocks since the hostile takeover announcement. From $34 to $28 you do the math.
So, they didn’t get Yahoo and they already lost $44B
I feel good
Btw, after yahoo tanks, google should offer to buy them for $10B, then a merger with google will leave M$ in a very distant last place
Winner: google as always!
To all those who think this will distract yahoo and MS will win, it not only distracts yahoo but all MS and thier roadmaps. The ppl running these companies arent stupid enuf not to realise the distraction. Thats why there is big retention packages/bonuses. Ofcourse, this is only one of the factor. Even during replying to the bid, u saw yahoo acquire 2 companies, release a new buig zimbra version,oneconnect,live(it sucked, but nonethless) and also Ms made an acquisition.
If the merger goes thru i dont think MS wud be stupif enuff to spend all the time porting yahoo platforms and losing the time to battle with google, although it cud happen in parallel slowly. It wud be a chance for MS to embrace open source finally after killing everybody(including perhaos yahoo?).
Personally, I dont want this merger to go thru. Im a fan of Yahoo and dont want it to be handed to the monkeyboy
I would like a voting option for:
* Get out now and make a new offer at $12/share in 18 months
Also. NEVER would google be allowed to buy another major search company!
it is all coming down to yahoo’s board election.
if msft can replace the board, game over.
if msft “suggested” pro-merger board members can’t get elected, then msft should count this as a loss and stop wasting time and money
you have to wonder how much of this is just coming down to ceo egos
jerry thinks he can “save” yahoo. why else would he put up such a fight? this is going beyond fiduciary responsibility. the law does not compel a firm to take a “scorched earth” approach.
ballmer wants something noteworthy on his resume. he has good profits on the books but i sense he wants something more singularly associated with him tenue. he has made it clear he wants this deal done…even in the face of msft losing so much value, you have to wonder why he is going on
“Im a fan of Yahoo and dont want it to be handed to the monkeyboy”
You do realize they already handed it back to him (Yang)?
To Jennifer Davis (Comment 26) and other Microsoft haters:
Quote from Jennifer – “Both companies are struggling, but any path I can see from here will end badly for all parties.” What planet are you on or should I say drugs?
Against industry trends and the constant parroting of naysayers like Jennifer Microsoft continues to grow and grow. Microsoft just recently posted 15% growth in Net revenue up from USD$44b to USD$51b and growth of 12% in Net income up from USD$12.6b to USD$14.1b. Apple dissappointed and so did Google but Microsoft beat all analyst expectations and the ignorant naysayers. Let’s see – Google is a one trick company – they have monetised search, nothing else. Apple – Mac OS only accounts for 3% of computers desktop operating systems and Linux 1% but you wouldn’t think so from all the anti Microsoft comments from people living in fairy land. Microsoft is the only constant in the business and they continue to grow!
Microsoft is not even remotely close to a company who does not continue to innovate, invest, acquire and deliver wanted products and technologies.
Linux was meant to be the death of Microsoft = Linux market share has been going backwards.
Microsoft has come from nowhere and is now considered one of the top 3 players in Business Intelligence – Gartner report. They are now also considered a leader in Unified Communications as well.
Microsoft invests USD$6.5b on R&D this year and it continues to make good and successful acquisitions. Examples – aQuantive, Danger (Mobile) and many many others.
The latest report of Open Source Office Apps and Google Apps see only 0.03% of US consumers switching to office apps in the cloud and against this Microsoft has posted record growth in Office sales.
More than 50m mobile phones with Windows Mobile are being shipped with growth of more than 300% per annum – how many iPhones were sold!? No comparison.
The board of directors of Yahoo! are legally bound to maximise value for their shareholders nothing else and the offer by Microsoft is the best option for the future of Yahoo!. Wall Street has already said they would support a bid up to $35 per share and anyone who thinks it won’t happen demonstrate their inability for rational thought.
So before you continue to make uniformed and ignorant comments – get some facts.
Microsoft is always great and will continue to be great. Yahoo!, while also great, can do better, and must.
I think the changes to vesting and severance alone are a major breach by Yahoo’s directors of their fiduciary duties. I suspect we will find that out before too long as they are setting themselves up nicely for shareholder lawsuits based on those actions.
The board appears to be doing this more to protect their board seats and to get MS to go away rather than trying to get MS to raise their bid (which I think breaches those previously mentioned “Revlon duties”).
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Let’s face it, Yang is an arrogant ass and would rather see his company sink then go into the hands of MSFT. Shareholders be damned. He started it so he feels as though it’s his right to destroy it. He isn’t a CEO and has been played like the fool that he is by both MSFT and Google.