Thursday, February 21, 2008

More on Yahoo and Microsoft

On Monday, I talked here about the bid Microsoft was making for Yahoo. This is an update.

Both Microsoft and Yahoo have been in the news since my last post.

Microsoft chairman Bill Gates was quoted by the Associated Press (AP) saying on Monday that Microsoft has no plans to increase its offer. “We sent them [Yahoo] a letter and said we think that’s a fair offer . . .They should take a hard look at it.”

Speculation abounds as to Microsoft's next move. Yesterday, the AP said Microsoft:

"plans to authorize a proxy battle this week, according to The New York Times DealBook blog. It has until March 14 to nominate a slate of directors for Yahoo. Microsoft and its advisers declined to comment.

Election results would be announced at Yahoo's annual meeting. Last year's was held in June.

Microsoft also may simultaneously circumvent Sunnyvale, Calif.-based Yahoo's management and ask shareholders to sell their stock to Microsoft directly."

It's no secret that Yahoo's shareholders have been impatient with the company's lackluster performance. CEO Jerry Yang has failed to follow through on his promises to turn the company around. A direct offer to the stockholders by Microsoft to buy their shares might elicit a favorable response.

If Microsoft decides to go to the shareholders, they will probably focus on large blocks of stocks held by mutual funds and other institutional investors.

A proxy fight would be cheaper than raising the $31/share bid. If Microsoft follows through and sponsors a slate of officers and if the proxy battle succeeds in placing those people in office, Microsoft could try to undo any poison pill defenses Yahoo puts in their path.

Meanwhile, Yahoo hasn't been letting the grass grow under its feet. Apparently not satisfied that the poison pill strategy I described on Monday was sufficient, Yahoo's board adopted new severance packages for its employees.

The Associated Press reports:

The . . . company's new severance plans - to take effect if Microsoft succeeds in its takeover bid - cover Yahoo's top executives and all full-time employees. The plans are designed to keep workers on board even if the company changes hands. They also could make it harder for Microsoft to move Yahoo staff to Redmond and raise the overall cost of integrating the two companies.

In an e-mail to employees last Friday, Yahoo Chief Executive Jerry Yang wrote that the severance plans 'shouldn't be construed as any indication that a change in control might or might not take place.'

The company said in a Securities and Exchange Commission filing Tuesday that workers who lose their jobs without 'cause' or quit 'for good reason,' as Yahoo defines it, would continue to receive their salary and medical benefits for four to 24 months, plus reimbursement for 'outplacement services' for two years.

A Yahoo spokeswoman would not say what might constitute good reason.

Departing employees' stock options would also vest faster than scheduled under the new plans.

On the surface this move might look as though Yahoo is trying to retain its people. However, such moves would also make the company far more expensive.

There's another takeover term I didn't mention in my Monday post. Called a "suicide pill," or sometimes called "the Jonestown Defense," the term refers to a defense strategy that is so extreme it runs the risk of actually ruining the company instead of preventing a hostile takeover.

Stay tuned . . .

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