YHOO and MSFT: Jerry Yang should be fired

by Mathew on May 3, 2008 · 22 comments

So Microsoft has taken its ball and gone home: the company announced late today that it is withdrawing its bid for Yahoo after the company refused its bumped-up $33 a share offer and stuck firm to its demand for $37 a share. The letter from Steve Ballmer, which my friend Paul Kedrosky also has posted, describes how Yahoo not only refused the offer, but made it obvious that it was prepared to effectively commit corporate hari-kiri in order to make itself as unappealing as possible. Among other things, it planned to sign a keyword-ad deal with Google.

I’m all for fiduciary duty, and in particular the duty of senior executives to scour the globe for a competing offer in order to get the best value for their shares. But Yahoo has had three months and has turned up nothing but an unbelievably lame deal with AOL (or so rumour has it). What possible reason could it have for pushing Microsoft to $37? The existing offer was already 70 per cent higher than the stock was trading at prior to the bid. And the Google deal is just a poison pill by another name.

In my view, Yahoo CEO Jerry Yang has gone way beyond fiduciary duty and has been effectively blocking this deal in any way possible. I expect to see the stock tank, and deservedly so. If I were a shareholder, I would be calling for Yang’s head. This deal was by far the best opportunity the company had to achieve some value.

Update:

This post appears at Seeking Alpha as well, and there are some good comments from Yahoo shareholders and supporters there.

  • http://www.ohwowrd.com David

    I might go so far as to say that it might have been a violation of fiduciary duty to not take the MSFT offer, as the highest actual value that could be obtained for the company.

    Valuation is always difficult, but it seems hard to argue that Yahoo's intrinsic value as an independent entity could be so far off from the valuation at MSFT's revised $33/sh final offer, especially when Yahoo had been trading in the low $20s/sh before the bid.

  • http://www.mathewingram.com/work mathewi

    I totally agree, David. Anyone who says Yahoo could be worth $37 as a
    standalone company needs their head examined. Yahoo started off on the
    road to fiduciary duty and crossed over into la-la land.

  • http://tvbythenumbers.com Robert Seidman

    Ah, long live the near-term view! Which I suspect most of the shareholders will share. But…

    All you need to really ask yourself is these two questions:

    1. What are the chances that Jerry Y. is smarter than you or me?
    (100%)
    2. What are the chances that Jerry Y.'s ego is bigger than Steve B's?
    (0%)

    You undervalue the value of scale, which is understandable with a near-term view/ But Yahoo still has scale in spades. It's like thinking NFL teams are overvalaued. All sports franchises will only get *more* valuable because soon, sports will be the only thing people watch live (and are forced somewhat to actually watch the commercials) on TV.

    Things with scale come with a premium. And should. This doesn't mean Yahoo won't go down to $23 at the open on Monday! But I'm pretty sure unless they screw things up so badly that scale erodes, over the long-term, Jerry made the right call.

    I guess the more fun question is who gets fired first? Jerry or Steve?

  • http://www.winextra.com StevenHodson

    I think that the time has come as well for Ballmer to take a very long permanent vaction. The whole idea was stupid and irresponsible as was Jerry for not taking the offer.

  • http://www.mathewingram.com/work mathewi

    I agree that scale has value, Robert — so how come Yahoo and the
    uber-smart Jerry Yang haven't been able to generate any value from all
    that scale? Yahoo has had not just months but years and has little or
    nothing to show for it in terms of added value. Time to let someone
    else try.

  • http://www.mathewingram.com/work mathewi

    I'm not sure I agree, Steven — I think acquiring Yahoo was a valid
    move for Microsoft to make at this point, if only to get its media and
    advertising assets. But I think Ballmer could definitely have handled
    things better. Negotiating with him must be like negotiating with a
    pit bull.

  • http://tvbythenumbers.com Robert Seidman

    I don't think Jerry is the best man for the job. I don't think it's awful for either MSFT or YHOO longer term if this deal doesn't get done (personally, I think it's best for both), but whether Jerry should be the CEO is a VERY separate question than whether he should be fired for not taking the MSFT deal.

  • http://eckenrodehouse.net n8k99

    i think negotiating with Ballmer must be more like avoiding a wrecking ball. Yang did an impressive job standing up o Microsoft and this could really be a great turning point for Yahoo.

  • http://www.kapagency.com Wendy

    I totally agree. Yang and company where in no way helping share holders by declining on the day. They were so lucky to get a deal in the first place, it is just mind boggling that they would not take it. They need to get rid of Yang…I'm glad I don't have any Yahoo shares or I would be pulling my hair out!

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  • Thusenth

    Yahoo was definitely a huge strategic attempt on the part of Microsoft to gain valuable Internet media assets since apart from maybe their Start Page (msn.com), MSN Messenger, and Hotmail, Microsoft has struggled in gaining any traction on the Internet.

    That said, yes Yang did pass up a lucrative offer for its shareholders, and he's definitely going to see legal action from many shareholders. But Yang can also use this as a turning point for the company and can maybe spin this in a way that makes him look like a hero – David and Goliath sort of thing – and rally his troops. Unfortunately, I'm sure there are more than a few employees with equity in the company that now looks at Yang as the guy who screwed them.

    Either way, I think Yahoo is better of as a standalone company – it is innovative, a supporter of open Web standards, and has lucrative International Internet assets. The last thing I would want to see is Microsoft acquiring them and then beginning the process of moving away from PHP and MySQL to ASP and SQL server. *shutters*

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  • Doninaz

    Pigs get fat, hogs get slaughtered.

  • http://www.peterblaise.com/ peterblaise

    Hey, I'm pleased. I PAY Yahoo for their services that I receive, and I would have left if Microsoft took over. Go-o-o-O-O YAHOO!

  • Doninaz

    Pigs get fat, hogs get slaughtered.

  • http://www.peterblaise.com/ peterblaise

    Hey, I'm pleased. I PAY Yahoo for their services that I receive, and I would have left if Microsoft took over. Go-o-o-O-O YAHOO!

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