Yahoo! (YHOO) seems to have gotton several pieces of bad news yesterday. The chief of strategy at Microsoft (MSFT), if there can be any such person, said that his company would go off on its own. Rupert Murdoch, monarch of News Corp (NWS), said he was not talking to the portal company or AOL or Microsoft or anyone.There were also rumors that Microsoft was trying to buy social network Facebook as a sort of consolation prized for losing Yahoo!. Since no one can make money on social networks it may be close to the door prize at a Daughters of the American Revolution meeting than a good M&A transaction.
The last rock on the pile was a bit of news that Google (GOOG) may not want to sell search advertising for Yahoo!. That was Yang & Co.’s ace in the hole in its battle with Microsoft. Google makes more money on ads tied to search results, so Yahoo! could make a lot of cash using the software from its rival. Wall St. thought the idea was a good back-up to an outright M&A event.
Yahoo! now has the problem of not knowing what it is worth. Is it the $33 that Microsoft was prepared to offer, or the $19 where it traded before all of the haggling began? Yahoo! has tried to make the case that it will be much more valuable in three years when it has fixed all of its problems, but that is an "i’ll sell you the Brooklyn bridge" deal and no one is buying it.
The Yahoo! board is up against a terrible dilemma. It has an annual shareholder meeting coming soon. Who will explain why people who owned stock in the company don’t have $33 a share? Who will argue that Yahoo!’s management should not be sued for amateurish negotiating skills?
The simple way out is to put the company up for auction. To save banking fees, the company could use Ebay (EBAY). It works for selling cars and lunches with Warren Buffett. Yahoo! may actually get some offers from unexpected sources.
If the Yahoo! board wants to show that it takes the term fiduciary" seriously, it needs to seriously offer the company to the highest bidder. Otherwise the appearance is that they believe their own press and can get the company’s shares to $40 on their own. If that happens it will be sometime near the end of the world.
Douglas A. McIntyre
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