Filed Under: ,
Tickers in this Article: YHOO, MSFT, TWX, NWS, GOOG
Yahoo (Nasdaq:YHOO) is starting to hear it from shareholders, as it should. Activist shareholder Carl Icahn was one of the first to make waves after the board's actions caused Microsoft (Nasdaq:MSFT) to withdraw a $33-per-share offer for the search company. Microsoft took the bid off the table a few weeks back, but actions from people like Icahn may have started things up again.

The Initial Tug Of War
Microsoft announced its original $31 bid for Yahoo back on February 1 of this year. At the time Yahoo's shares were trading around $18 and the bid represented a 60% premium for the company. Still, Yahoo's CEO Jerry Yang and board of directors could not see a good offer when it hit them in the face.

To their credit, through repeatedly saying that the bid undervalued Yahoo, refusing to accept it, and trying to workout deals with Time Warner (NYSE:TWX), News Corp. (NYSE:NWS), and Google (Nasdaq:GOOG), the bid was upped to $33. Not bad right? Well, apparently this was still a problem as Yang and others at Yahoo were looking for something between $37 and $38 per share. This came at the end of a deadline set by Microsoft CEO Steve Ballmer, and as the deadline passed Ballmer pulled the rug on the deal.

Icahn Brings Back Some Hope
I think the moves by Yahoo's management were irresponsible throughout this process. I have said it before, if the company is worth $38 per share, the management is indicting its own skills, as the company's shares were trading for less than half of that price with the market valuing the stock. I think the deal was a good thing for shareholders. After the bid was withdrawn, the stock shot down, but is now still trading above $27, representing the hope that many have that Microsoft will come back. Icahn, well known for his activist investing, owns 4.3% of the company and is a little peeved that Yahoo won't let him take advantage of the bid. (Learn to profit by following the lead of some of Wall Street's most ruthless investors, in Activist Hedge Funds.)

Icahn announced that he will lead a shareholder revolt to oust Yang and the rest of Yahoo's board unless they sell to Microsoft. John Paulson, the head of Paulson & Co. has joined Icahn with his 8% stake. Icahn may have a total of around 30% if you include Gordon Crawford of Capital Research, who said he was extremely angry with Yang after the deal fell through, and Bill Miller at Legg Mason, who said he would be happy with $34 per share.

Yahoo's Reply and Microsoft's New Pitch
Yahoo wrote a sharp response back to Icahn stating that his views on the board's decision are misguided. Yahoo stated that its board is the best suited to create shareholder value and that all the arm-twisting is pointless since Microsoft has already walked away from any potential deal. Yahoo may have spoken too fast.

News hit over the weekend that Microsoft has reopened talks for an alternative deal with Yahoo. Details of the talks are still blurry, but currently it is a discussion for a joint venture and not a full acquisition of Yahoo. While this is not exactly what Icahn and friends wanted, it is certainly a move in the right direction. Microsoft said it has not reopened its bid for a full acquisition of Yahoo, but reserves the right to do so. I think this will be the likely conclusion.

The Bottom Line
Icahn started making some waves at Yahoo, in the wake of Microsoft's pulled bid. His cry didn't fall on deaf ears, as it may have caused Microsoft to, at the very least, start talking with Yahoo again. If Yahoo's management is wise, it will take this opportunity to reopen the door for an acquisition. Although another bid has not been made, I think it will only be a matter of time.

For further reading, be sure to check out The Wacky World of M&As.

comments powered by Disqus

Trading Center