Suddenly Jerry Yang needs Microsoft

Tag : Jerry Can

Don't you just love when the one person who didn't want anything todo with you suddenly needs you? Well, in today's crazy onlineworld, that's exactly what's going on with Jerry Yang andMicrosoft. Just a few months ago, Yang was doing everything hecould to turn Microsoft away. And now, he needs to do everything hecan to bring them back.
If you haven't been following the latest on the Yahoo front, the company's stock price has plummeted (it's at $21.61 right now, way down from its $29 share price backin February); executives are getting out of town as quickly as possible as a reorganization getsunderway ; Carl Icahn is exerting unbelievable pressure on Yang; andshareholder confidence in Yahoo is dropping by the minute.
All the while, Yang has tried to save what's left of his bleedingcompany, but to no avail. Unless something major happens soon,Yahoo will be far beyond the point of saving and although the verythought of selling the company to Microsoft runs against Yang's ownprinciples, what other option does he have?
In order to save Yahoo and maybe walk away with some cash himself,Yang has no other choice but to strike a deal with Microsoft andwalk away from this albatross. And although Microsoft was willingto offer a substantial premium on the stock price, which saw thevalue reach into the mid-thirties per share, don't expect anythingof the sort this time around.
Based on the financial health of the company, the incredibleinternal problems, and the fact that Yang no longer holds anyleverage, I don't see Microsoft offering more than $25 per share.
To allay shareholder fears, Yahoo released a letter to shareholders yesterday explaining why it chose a search deal with Google and what theimplications could mean to the company.
In reality, it was nothing more than a desperate plea by Jerry Yangand Roy Bostock to keep shareholders on their side and explain thebenefits of working with Google. But let's face it -- the companywants nothing more than to be acquired by Microsoft and is usingthis deal to bring Ballmer back to the table.
Yahoo couldn't care less about Google and is hoping against hopethat it spurs a quick buyout. Before the Google deal was announced,Yahoo went back to the table with Microsoft hoping for alast-minute reprieve. When that didn't happen, it was forced tosign the deal with Google to soften the Icahn blow and hopefullystop the share price bleeding. But it didn't work.
Instead, the stock price continued to fall -- shareholders don'tcare about sector deals -- and Jerry Yang was left with a companythat had no leverage, needed help, and didn't know where to findit.
Until now.
After realizing what was really happening and waking up to thereality that Yahoo isn't in the driver's seat anymore, Yang wasleft with no other option but to entertain a deal with Microsoftand hope that he can get out from under this albatross before it'stoo late.
And perhaps this is where the irony comes in. Yahoo is still awildly successful company that enjoys quarterly profits that reachinto the $500 million range. But with all that success, itsmanagement can't muster better support from shareholders. And tomake matters worse, it can't even keep executives on-board.
Maybe Icahn was right all along -- the management really is runningthis company into the ground.
A few months ago, the very thought of selling his company toMicrosoft was too much for Jerry Yang to handle. He was under theimpression that Microsoft would ruin his legacy and the once greatYahoo would be a forgotten rung in the online ladder. But now thoseprinciples have seemingly been thrown out the window.
To make matters worse, Microsoft will never offer $33 per sharelike it once did. And why would it? Yahoo needs Microsoft more thanMicrosoft needs Yahoo, and with a stock price that can't even hit$22, why should we expect an offer that's much higher.
Based on the fact that Yahoo is still extremely profitable, has asolid group of employees, and could drastically change the wayMicrosoft does business, the company is still a major asset toBallmer and company. But because of its issues with shareholders,the fact that it can't get out of its own way, and that it has aplummeting stock price, Microsoft shouldn't offer anything morethan $25 per share.
By doing so, it puts Yang in a tough spot. Does he take an offerthat's substantially lower than the last just to get out? Or shouldhe reject the offer on principle in the hopes that Microsoft willcome back to the table with something higher? Surely the secondoption would help him save face for a little while, but how wouldshareholders react? Will Icahn suddenly enjoy a resurgence andfinally put the stake through the board's heart?
These are all the questions that Yang and Borstock need to answer.And based on their track record, I seriously doubt they'll make theright decision.
At this point, Yang should cut his losses and accept the first dealMicrosoft offers him. Even though his stewardship of Yahoo willeasily go down as one of the worst in history, at least he canescape with a slight premium on the stock price and letshareholders walk away with something to show for all their angst.
The end is near for Jerry Yang and Yahoo. Microsoft has expressedinterest and is willing to pay a premium on a stock price thatcontinues to fall. Yang needs Microsoft now more than ever, and Ijust don't see any other option but to wave the white flag and sellof his beloved company.
Maybe Ballmer really was the smartest of the bunch all along.
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