I’m sure you’ve heard the rumors by now:
After a series of meetings over the past week, Yahoo’s board determined that the $31 per share offer “massively undervalues” Yahoo, [a person familiar with the situation] said. It also doesn’t account for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators…
Yahoo’s board believes that Microsoft’s is trying to take advantage of the recent weakness in the company’s share price to “steal” the company. The decision to reject the offer signals that Yahoo’s board is digging in its heels for what could be a long takeover battle. The company is unlikely to consider any offer below $40 per share, the person said.
$40/share, eh? If you go the route of splitting Yahoo! (YHOO) into itty bitty pieces, one analysis pegs the sum of Yahoo!’s parts as $38/share. From that analysis, $40/share sounds like a fair premium.
The question on everyone’s mind, however, isn’t whether or not the price is fair. It’s whether Yahoo! is trying to up Microsoft’s (MSFT) bid, or defend itself from being absorbed by the Borg.
On one hand, you have Peter Kafka of Silicon Valley Insider writing:
This is a smart move. It will be interesting to see whether Yahoo’s letter to Microsoft contains the same $40 language, as this would obviously make the message not a “rejection” of the bid but merely a price negotiation. We suspect Yahoo won’t put the $40 language in the letter, but in any event, they have just countered Microsoft’s bid.
(His colleague Henry Blodget, agrees with his own in-depth analysis.)
And on the other hand, you have Kara Swisher of All Things Digital writing:
But Yahoo is going to need a lot more than Google if it really wants to stay independent, as I believe it actually does. While some will call this a negotiating tactic to get Microsoft to give it a few more dollars above its $31 a share offer, it is not simply that.
Yahoo’s top execs and now its board are making a swing-for-the-fences effort to keep it out of Microsoft’s hands.
(Even the Wall Street Journal article that first broke this rumor mentions that “Yahoo has taken ‘poison pill’ provisions to prevent an unwanted takeover.”)
Wow! What a battle!
My personal prediction?
Yahoo’s got Sue Decker, an up-and-coming executive (or perhaps, CEO?), and a new CTO, Aristotle “Ari” Balogh. Yahoo’s got a lot of major shareholders, especially institutional holders, to appease. And Yahoo’s got Jerry Yang, whom I’m guessing wants to say “Not!” to Microsoft.
That’s a mixed bag, at best. So perhaps a compromise will emerge. Gazing into my crystal ball, I see Jerry’s sagging shoulders as the Board agrees that even though they’d prefer not to sell to Microsoft, they’re going to ultimately do so, if they can get a good enough premium. Hey, everyone’s got their price. Especially major institutional holders.
In other words, when you’re a public company, you have to share ownership with lots of other entities (people and organizations) who are providing you with their financial power. In exchange for that financial power is some degree of control. So even if you disagree with those entities, if enough of them band together, they have the power to decide your fate.
(I know, I can be a cynical bastard sometimes.)
UPDATED 2/13/2008: Here’s another analysis that arrives at a somewhat similar conclusion, though the author says so much more eloquently than I.
This is why I’d never take my company public.
I’ve actually thought about creating a company and keeping it private intentionally, because the incentives for shareholders typically promote short-term thinking and profitability, at the sake of long-term thinking and profitability.
But sometimes doing what’s best for the company means taking it public, like if you want to pay out dividends to your shareholders and share the wealth. (I’m thinking non-tech companies here, with the exception of MSFT, which does pay a dividend.)