Microsoft to Yahoo: Ditch the Board and Let's Dance

Adding insult to injury Microsoft said it would be happy to talk to Yahoo again, even about a full takeover -- but only if the current board is ousted at the Aug. 1 shareholder's meeting.

From the sound of things they'll meet with you guys in the aisle as the gavel comes down on the vote.

While of course there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo’s shareholder meeting if a new board is elected.

Microsoft's announcement is confirmation that Carl "Bring me the head of Jerry Yang" Icahn and the Redmond giant have been coordinating their efforts -- Icahn, in an "open letter," says he and CEO Steve Ballmer have been meeting often, and for up to an hour at a time.

It also gives a huge boost to Icahn's aggressive move against the board and caused Yahoo stock to rise sharply again -- this time nearly 9 percent -- in the roller-coaster ride that this on-again, off-again deal has been for shareholders.

With Microsoft firmly back in the picture -- not just as the indifferent beneficiary of an Icahn assault -- Yang is now under more pressure than ever to convince shareholders that:

1. They can do better with Microsoft than with his hopes and dreams and pleas for "independence."
2. At this point, he's nothing more than not just a major impediment to success.

Yang now has to walk that line pretty much full time for the next 3 and a half weeks while Microsoft and Icahn do their "Good Cop/Bad Cop" routine.

From the Good Cop:

As Mr. Icahn notes in his statement today, it would be premature to discuss at this time important details such as the price or other terms of a possible transaction. We respect the right of Yahoo’s shareholders to determine the destiny of their company, and we do not intend to engage in ongoing commentary on these issues in advance of
Yahoo’s shareholder meeting.

As we explained on June 12 when
Yahoo announced an agreement with Google, we believe that our proposed search acquisition and partnership would have delivered superior value to Yahoo’s shareholders and the marketplace as a whole. We have not changed our position, even as we continue to move forward with our own online search and advertising offerings. We therefore welcome interest by Mr. Icahn in pursuing this and other discussions.

From the Bad Cop:

Much has been said about how badly the Yahoo board has "botched up"
negotiations with Microsoft over the past months. There is no need to keep pointing out the mistakes I believe Yahoo made by not immediately taking a $33 offer made by Microsoft. But one thing is clear -- Jerry
Yang and the current board of Yahoo will not be able to "botch up" a negotiation with Microsoft again, simply because they will not have the opportunity.

Also, Icahn says, the reason Microsoft won't even do a deal with a willing Yang & Co. is because it doesn't trust the current guard not to mess things up in the months it would take for the deal to close, with Microsoft's money at risk.

Steve made it abundantly clear that, due to his experiences with Yahoo during the past several months, he cannot negotiate any transaction with the current board. His logic is simple. If and when a transaction was consummated, Microsoft would be guaranteeing a great deal of capital at closing. However, a transaction could take at least nine months and perhaps longer to obtain regulatory clearance in the U.S., Europe, and elsewhere. During that period, if the current board and management team of Yahoo! mismanage the company (and their recent track record is far from reassuring), Microsoft would be putting its money at risk and a great deal could be lost.

Ouch.

If we were Jerry Yang we'd be a lot less sure about the subject of our "What I Did This Summer" essay this year. While it's impossible to be certain of shareholder sentiment they have consistently bid up Yahoo stock on reports even hinting at a takeover and just as consistently sent shares plummeting on news that the deal was dead, done, over with, kaput.

That is hardly a vote of confidence.

No reaction yet from Yahoo, but here is their 2008 Annual Meeting page where you can see a list of the dead men (and one woman) walking.

See Also:

• Microsoft Statement Concerning Carl Icahn Letter
• Text of Carl Icahn Letter
• Yahoo Makes Its Case for the Umpteenth Time; Shareholders Aren't Buying