It’s pretty obvious that a better offer for Yahoo is not out there, as Microsoft has the wonderful combination of being cash-rich and desperate – and can outbid anyone else out there.
But Yahoo directors do not want to lay with the lumbering giant.
So this week Microsoft first whispered that the offer may be lowered, then had an eventless meeting with Yahoo, and finally then gave an ultimatum to Yahoo directors to play nice or they will start a proxy fight, and at a lower price:
The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.
A proxy fight is an expensive and bruising messy endeavour – which has its own set of strange rules. Basically Microsoft gets to send documents and market to every Yahoo shareholder, aiming to usurp the Yahoo board and put in their own candidates that will recommend the deal goes ahead. Each shareholder gets to choose between taking the money and rejecting the suitor, and Yahoo’s board also markets to the shareholders.
The fiduciary duty of a board of directors is to maximize value of a company to it’s shareholders. Microsoft’s approach is clever – if they win the proxy battle, which they will as it is a simple financial decison for investors, then the Directors can be blamed for the loss in value between the current offer and the reduced offer that Microsoft is threatening would occur in that hostile takeover. If Microsoft lose the proxy battle, then the directors are even more exposed.
The Directors could go to jail for that, but more realistically they are exposing themselves and Yahoo to a class action suit from angry shareholders – there are plenty of lawyers out there that will want to do this.
Last word to Steve Ballmer:
It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.