The Yahoo! (YHOO) board and management could have done an out-sourcing deal some time ago to license its search business to Google (GOOG). It would probably have picked up some money beyond what it makes with its own search features. The Google system gets higher advertising revenue yields. Yahoo! could have saved money by cutting R&D staff as part of the bargain
But, the board never took that step. They obviously did not think it was in the best long-term interest of shareholders to farm out such a strategically critical function. Yet, the board is turning to the Google options as an alternative to being taken over by Microsoft (MSFT). Suddenly, it has become a viable alternative.
The actions of the board raise the question of whether they performed their duty for shareholders in the past or if they were right. Giving a company’s most important function to an outsider can never be an option.
Either way, the Yahoo! management has not been able to keep the firm’s stock above $30 for most of the last two years. Except for the run-up on the bid from Microsoft, the portal’s stock has lagged the Nasdaq.
Steve Ballmer is not going to raise his bid for Yahoo!. He does not have to. The Google option means going to regulators and saying the No.1 and No.2 search companies want to get married. That won’t fly.
The Yahoo! board has to take the one best path open to it, admit that things have gone badly, and take the Microsoft offer.
Douglas A. McIntyre
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