SAN FRANCISCO (AP) - AP Video
Yahoo Inc. Chief Executive Jerry Yang has gotten what he wanted: a chance to
prove his company is worth more than the $47.5 billion that Microsoft Corp.
offered to buy the Internet pioneer.
It will be a daunting challenge, as Yang will be pointedly reminded Monday
when investors are expected to show how little they think of Yahoo without a
takeover bid on the table. Faced with resistance from Yang and the rest of
Yahoo's board, Microsoft withdrew its offer over the weekend.
Many analysts believe Yahoo's stock price, which had climbed nearly 50
percent since Microsoft's initial offer, will surrender most, if not all, of
that gain, leaving the Sunnyvale-based company's market value around $30
billion.
Disillusioned shareholders are bound to question whether the rejection of
Microsoft's sweetened $33-per-share offer was driven more by emotion and ego
than sound business sense.
"Clearly there's frustration," said Darren Chervitz, co-manager of the Jacob
Internet Fund, which owns Yahoo stock. "I am not even sure if Yahoo cares about
its shareholders because they didn't show much regard for shareholders' best
interests in this process."
Despite such negative sentiment, Yahoo shares are unlikely to immediately
fall back to their $19.18 pre-bid price, partly because some investors may still
be holding out hope that the software maker will renew its takeover attempt if
Yahoo continues to struggle.
Yahoo shares finished last week at $28.67, slightly below the $29.40 per
share that Microsoft was offering before Chief Executive Steve Ballmer agreed to
raise the offer to $33 per share in a last-ditch effort to get a deal done.
Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle
Saturday to inform Ballmer that the company wouldn't sell for less than $37 per
share -- a price that Yahoo's stock hasn't reached since January 2006.
Analysts and investors were left to wonder why the two sides couldn't
compromise at $35 per share.
"They really didn't seem that far apart," Chervitz said. "There is probably
blame to go around on both sides, but I think most of it is in Yang's hands."
Monday's anticipated shareholder backlash will put Yang on the hot seat as
he tries to execute on a turnaround plan that he began drawing up nearly a year
ago after he replaced Terry Semel as CEO amid shareholder angst about the
company's financial malaise.
"This squarely puts the pressure on Jerry Yang to deliver results and
shareholder value," Standard & Poor's equity analyst Scott Kessler said. "You
are going to see a lot of shareholders just throwing in the towel because they
are going to realize it's going to take awhile for the stock to get back to
where it was Friday."
Ballmer also will be under the gun to prove he can come up with another way
to challenge Google Inc.'s dominance of the Internet's lucrative search and
advertising markets.
The unsolicited bid was widely seen as Ballmer's admission that Microsoft
needed Yahoo's help to upgrade its unprofitable Internet division.
Analysts now expect Ballmer to use the money he had earmarked for the Yahoo
acquisition to explore other possible deals with large Internet companies like
Time Warner Inc.'s AOL and News Corp.'s MySpace and promising startups like
Facebook Inc. and LinkedIn Corp. Microsoft already owns a 1.6 percent in
Facebook, the second-largest social network behind MySpace.
But Ballmer is unlikely to be under as much duress as Yang because most
analysts believe Microsoft's stock price will rise Monday. The shares had
declined 10 percent to $29.24 since Ballmer made the bid, reflecting concerns
that the proposed marriage would turn into a complicated mess that would enable
Google to grow even stronger.
Yang, 39, has promised that Yahoo's development of a more sophisticated and
far-flung Internet advertising platform will produce net revenue growth of at
least 25 percent in 2009 and 2010. That would be a dramatic improvement,
considering that Yahoo's revenue rose by 12 percent last year and is expected to
grow at about the same pace this year.
But analysts are skeptical about whether Yahoo will be able to hit those
targets, raising the chances for a shareholder rebellion if the company stumbles
during the next few months -- a distinct possibility if advertisers curtail
spending in a shaky U.S. economy, as many analysts fear.
As it is, Yang and the rest of Yahoo's board almost certainly will face more
lawsuits from incensed shareholders.
Even some of Yahoo's own employees may be irritated because virtually all of
them own stock options.
What's more, Microsoft had planned to offer $1.5 billion in retention
packages to the thousands of Yahoo employees it wanted to stay on after a
takeover.
To help boost its short-term profits and its stock price, Yahoo is widely
expected to form a long-term advertising partnership with Google.
Although the final details are still being ironed out, Yahoo wants to hire
Google to place some of the text-based ads that appear alongside the search
results on its Web site. It's a task that Google already handles for scores of
Web sites, including AOL and Ask.com.
Both Yahoo and Google have said they were encouraged with the results of a
two-week trial run completed last month.
But turning to Google for help would be a humbling step for Yahoo after
spending more than $2 billion to acquire and build its own technology.
An alliance between Google and Yahoo also would face antitrust hurdles
because the two companies combined control more than 80 percent of the U.S.
search advertising market.
Although Google's superior technology would help boost Yahoo's profits in
the short term, some analysts worry it could be a mistake for Yahoo to surrender
any control over such a lucrative piece of the online ad market.
Yahoo also has been exploring a possible merger with AOL's Internet
operations, but may now have to contend with a competing offer from Microsoft.
Yahoo also might attempt to placate shareholders by buying back stock.
Kessler believes Yang should use some of his estimated $1.9 billion fortune
to personally buy more Yahoo stock even though he already owns 54.1 million
shares, or 3.9 percent of the company.
"Jerry Yang really needs to put his money where his mouth is," Kessler said.
"If he really thinks Yahoo is worth $37 (per share), then he needs to step up
and buy some shares when they are in the low $20."
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