Yang Leaves Buyout Doors Open (YHOO, MSFT, GOOG)

There was a rather odd email that went out to Yahoo! (NASDAQ: YHOO) employees today from Jerry Yang, CEO.  Here is the full link at the SEC website and you’ll notice that this email was sent out in all lower case letters.

Yang noted that the current developments from the Microsoft (NASDAQ: MSFT) buyout offer as "we won’t let it distract us from pursuing our transformation strategy…. as we’ve said, no decisions have been made about Microsoft’s proposal. our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape. and we’ve hired top advisors to assist through the process…. as this process moves forward, we’re going to keep you informed. your hard work and strong commitment are more important now than ever before."

Yang even noted some business as usual, "stay tuned for exciting announcements next week at the mobile world congress."  Most importantly, Yang noted that the board is focused on maximizing value of its assets for shareholders.

So here is what this is, or at least this is my opinion of the matter.  For starters this is a significant development.  Jerry Yang is keeping his options open for the company to go find a new partner or a new buyer.  But he is also acknowledging that he may need to capitulate and surrender to the Microsoft buyout offer.  On its own merit and on its own accord based on today’s environment, Yahoo! cannot expect that it stock is worth $31.00 on its own today.  Maybe it can get there on its own, but last week’s disappointing conference call put the company in for yet another full year of restructuring and another full year of uncertainty for shareholders.  Yahoo! shares were actually expensive on a relative basis to Google (NASDAQ: GOOG), and that is despite the huge weakness in the stock.  Internet companies are still thought of as instruments for growth.  Conducting large layoffs to go for earnings enhancements is more representative of a maturing business that has to be measured exactly the same as more traditional companies in a manner that is no different than mining companies, manufacturing companies, and diversified conglomerates.

Jerry Yang is keeping the door open so he doesn’t assure that the buyout gets killed.  Whether a CEO wants to fight it out and try to stay independent or not usually will take backseat to billions of dollars for shareholders.  That is particularly true if management has significant stakes and has an opportunity for a nice golden parachute.  Now the companies have to determine how they’ll work with regulators.  We still expect Yahoo! stock to trade around the headlines of its merger for the time being.

Jon C. Ogg
February 6, 2008