Vultures Feast on Yahoo Before It's Even Dead

The feeding frenzy around Yahoo seems to intensify with every new daily development, making me wonder when this injured animal is going to make the one-way transformation into a carcass. And it’s not just Microsoft doing the feeding with its unsolicited bid.

Reports today on TechCrunch and Silicon Alley Insider concerning Yahoo talks with News Corp. about potentially spinning off the Fox Internet Media to Yahoo with a slug of private-equity capital and maybe outsourcing search ads to Google—yeah, that’s a mouthful and more—still strike me as the usual M&A procession up to a higher bid from the acquirer. Yahoo shareholders would seem to be in no mood for this kind of fancy financial footwork, if it’s even possible. What’s more, it’s believed that Yahoo would need to lay off thousands more people to make the numbers work for a private-equity investment. What’s left then? …

And in the meantime, the birds of prey are already circling. Recruiters, for one. Of course, Yahoo has been prime picking ground for executives for several years now, given its VP-heavy roster, underwater stock options thanks to the sinking stock price before Microsoft's bid, and general malaise in many parts of the company. But now they're going hog-wild.

Yesterday, as the first of 1,000 layoffs began, several prominent Yahoos blogged their departures. And today came news via TechCrunch that Bradley Horowitz, head of Yahoo's Advanced Technology Division and a prominent evangelist for Yahoo, was leaving for Google. "He's definitely someone they wouldn't want to lose," says one former Yahoo VP. "(He) will be a real lightning rod and symbolic high-profile move."

It must be said that Microsoft may be happy to see a fair number of Yahoos take off, either because, frankly, they didn't get the job done or because, well, there's nothing stopping Microsoft from scooping up the good ones. But as the drama plays on, more people are looking for exits. Even if the deal happens, laments another Yahoo VP who's planning to leave, "The year and a half it will take to integrate the company is going to destroy it completely. Good people will leave and bad people will stick around. And no projects will get done."

More are already on the way out. "I've been so flooded with resumes, I don't know what to do with them," says one breathless recruiter who has already been mining Yahoo for various executive jobs for years now. He says recruiting agencies also have called him to help funnel laid-off and disgruntled Yahoos their way.

What's especially worrisome for Yahoo, and potentially for Microsoft if the deal goes through, is that online media, advertising, and technology jobs are fairly plentiful today, unlike during the dot-com bust when countless business development and marketing folks were out of luck for awhile. So anyone who wants to leave will probably be able to do so fairly easily.

Then there's another set of vultures: the hedge funds that have bought up Yahoo stock in hopes of extracting a quick few bucks if and when Microsoft raises its bid by a few dollars a share. It's not clear how much of Yahoo's stock is now held by these arbitrageurs, who are even less patient than Yahoo's longer-term shareholders were. But with the high volumes of trading in Yahoo's stock since Microsoft's bid, they probably hold a significant amount of Yahoo stock now, and you have to think they will tighten the screws on Yahoo's board before too long.

The funny thing is, all this is part of a well-choreographed dance in the M&A world. As Andy Rappaport, a venture capitalist with August Capital, told me, "The odds in cases like this are overwhelmingly in favor of a deal happening." So it's hard for me to believe that any of the parties involved want the negotiation-by-press to go on much longer, while the asset in question continues to putrefy. I mean, depreciate.

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