Monday, June 9, 2008

We Know What Icahn Will do with Yahoo; But Do We Know What Jerry Yang Has in Mind for his Yahoo?

It's tough leading the company you start once it reaches a critical threshold as a public company. That's what Jerry Yang must be feeling in the weeks coming up to the Annual Meeting.
First, there is public disclosure that he and his Board rejected a Microsoft offer of $40-a-share in 2007--which represented about 60% premium over the closing price when Ballmer made the offer. Terry Semel rejected it.
Second, Yahoo rejected a $31-a-share in February. Apparently, Microsoft may have paid up to $34 late April but again, Yahoo leadership--this time, Jerry Yang--said No. The official Press Release at that time commented:
Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. added, "I am incredibly proud of the way our team has come together over the last three months. This process has underscored our unique and valuable strategic position. With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."
Third, Carl Icahn starts acquiring Yahoo shares and there is proxy battle underway. Yahoo responds angrily to the first letter from Icahn. Then, he send further letters--all focused on getting Yahoo and Microsoft to enter into discussions of merger. Yahoo again responds angrily to Carl Icahn--essentially indicating that he has no vision for Yahoo. The following is from their June 6 statement:
Leaving aside Mr. Icahn's inaccurate interpretation of our retention plan, we again note that he has no credible plan to operate Yahoo!. We believe that Mr. Icahn's suggestion that we cancel our retention plan would have a destabilizing impact on Yahoo! and would clearly not be in the best interests of our shareholders. Furthermore, his suggestion that we put out a price publicly to see if Microsoft will alter its stated position is ill-advised. As we have stated numerous times publicly and privately, we are open to any transaction including a sale to Microsoft if it is in the best interests of shareholders.

Carl Icahn's vision for Yahoo is clear: Yahoo has failed in its competitive quest against Google; Yahoo does not seem to have a credible vision to organically grow and innovate to be a leader and that it should sell itself to Microsoft. His vision is right from the point of view of shareholders who have seen their intrinsic value in Yahoo plummet. Semel rejected $40-a-share offer from Microsoft in Feb 2007 but Yahoo did not subsequently offer any new compelling vision or avenues for growth. Semel was ousted but the Board seems preoccupied with defending itself against takeovers rather than crafting a winning strategy on its own.

Indeed, my analysis of the initiatives pursued by them (a much publicized trial with Google and discussions with AOL, NewsCorp and others) leads me to conclude that they were looking at strategic linkages to have a credible basis to negotiate a higher price with Microsoft. Unless Yang & Co come up with a credible vision (supported by a workable execution plan), they have no basis to say that Carl Icahn has no 'credible plan to operate Yahoo.' Icahn may not have a plan to operate Yahoo--he never claimed that he has one. He is simply claiming that there is a better way to maximize shareholder value that what the current team is pursuing. He has even given a public figure for Microsoft to consider.

Instead of accusing Carl Icahn of not having a credible plan to operate Yahoo, Yang & Co. should lay out the vision and plans that the shareholders and employees can rally behind. If they do, they even Icahn may support the current management team.

It's time to go beyond letter and press releases; it's time for laying out compelling visions and detailing credible operating plans. Will Yang & Co. deliver that before the upcoming Annual Meeting? It's a do-or-die situation for sure--even for the ones that founded the company.

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