I don’t know how closely you’ve been watching the Yahoo debacle, but yesterday’s letter from Carl Icahn to the board at Yahoo was a doozy.
If you somehow don’t know who Carl Icahn is, think “possible role model for Gordon Gecko“. He’s very, very effective at what he does. And he’s not someone to be toyed with on any level.
Some highlights from his letter (in case you’re too lazy to click the link):
"It is clear to me that the board of directors of Yahoo has acted irrationally"
and
"It is irresponsible to hide behind management's more than overly optimistic financial forecasts."
and just in case you still thought he was kidding:
I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock.
Ouch. I think he means it.
Now I personally think a Yahoo/Microsoft combination is a bad idea. Adding big companies together is rarely a way to drive innovation — it usually has just the opposite effect.
But here’s the thing: Microsoft offered a significant premium over Yahoo’s stock price. When the offer first came in at $30-odd, Yahoo was trading below $20 a share. Whether you liked the idea or not, Microsoft were paying a huge premium over what the market believed Yahoo was worth.
And at the end of the day, most shareholders hold stock to see a return on their investment. It was a very foolish decision by Yahoo to just try and ignore them. At best it was naive…
And don’t forget, the board of directors are answerable to the shareholders. Not Yahoo founders or employees.
Let me put it this way: Imagine your Mom’s car hadn’t been running too smoothly for several years. Out of the blue, someone offered you 150% of the Kelly Blue Book value if you’d sell it. You said no, we can fix the car and make it worth much more than that.
When you explain your “no” to Mom later in the day, is she happy or pissed?
By ignoring Microsoft, Yahoo have attracted the attention of a much more dangerous suitor in Mr. Icahn (and by dangerous, I mean dangerous to whatever chance they had of hanging on to their company).
Is this the point where the Yahoo board step up and start playing the game well? If this letter is anything to go by, apparently not.
At this point I see zero chance of Yahoo continuing to exist in anything like it’s current form. Congratulations to the board on successfully shooting yourselves in the head…