Is Microsoft's New Deal Proposal Really a Signal to Yahoo Shareholders?Rob Hof
My colleague Jay Greene, who covers Microsoft out of Seattle, had some thoughts on Microsoft’s surprising May 15 announcement that it’s talking with Yahoo about a deal short of a full acquisition. Here’s his take on what’s really behind the cryptic letter to Yahoo’s board:
Some folks might have wondered what the heck Microsoft was up to on Sunday when it disclosed that it “raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo” After all, billionaire investor Carl Icahn launched a proxy fight only three days earlier that improved the prospect of Microsoft getting Yahoo outright, and for a bargain at that. Why would the software giant give Yahoo an alternative?
Well, one possibility is that the announcement was really about sending a message to Icahn and Yahoo shareholders. Think about it. The biggest challenge Icahn faces in winning his proxy battle is convincing Yahoo shareholders that he can get Microsoft back to the bargaining table. As frustrated as some shareholders are with Jerry Yang and the board, it’s not likely that they want Icahn running Yahoo. They want Icahn selling Yahoo.
That would be great for Microsoft. But just as it was unwilling to launch a proxy contest, it’s equally uninterested in publicly supporting Icahn’s efforts. So how does it keep its hands clean but still signal to Yahoo shareholders that they should feel comfortable tendering their shares for Icahn board slate? Well, it reaches out to Yahoo to pursue a new alternative agreement, something that company sources say requires public disclosure. Microsoft statement, covered widely, gave Yahoo investors the wink and nod they needed. The company said it “reserves the right to reconsider” buying all of Yahoo. Without ever speaking with Icahn or publicly endorsing his proxy bid, Microsoft gave him – and other frustrated Yahoo shareholders – the assurance they’re looking for that it would come back to the bargaining table if asked.
That’s not to say that there isn’t an alternative deal cooking. Sources say there are meaningful talks between the two companies, though details of those discussions are hard to come by. But by subtly backing Icahn, Microsoft has also ratcheted up the pressure on Yahoo in the alternative-deal talks. The Net pioneer’s options are increasingly limited. It can deal with Microsoft now, or face the wrath of Icahn later.
I would add something else to Jay’s analysis: Whatever message Yahoo shareholders get will have to be quite clear before they vote for a board they know isn’t prepared to run the company for long. “If I was a Yahoo shareholder casting a vote, I would only do it if there was an immediate sale (to Microsoft),” Stephen Mader, vice chairman and managing director of Korn/Ferry International’s Board Services practice, told me today. He’s a little perplexed by Icahn’s approach in fielding an entire board slate, since it’s no sure thing all his nominees would get elected. But even if they don’t, perhaps that will give him enough leverage to pressure the rest of the board to do the Microsoft deal.