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SUNNYVALE—He
fended off Microsoft Corp.’s takeover bid, at least for
the moment. Now Yahoo Inc. chief executive Jerry Yang
needs to prove that he made the right decision.
When
Microsoft withdrew its three-month-old offer Saturday,
Yang and his team were “elated,” said one person close
to Yahoo management, even after the software giant
expressed willingness to add about $5 billion to its
$42-billion bid.
But
their jubilation might be short-lived.
Yahoo’s
shares are expected to plunge Monday, as investors
punish the company for pushing away a deep-pocketed
suitor willing to pay a big premium. Microsoft said
Saturday it had failed to agree with Yahoo on a price
and ruled out waging a proxy fight.
“It’s
not going to be a good day for any of us,” one major
Yahoo shareholder said.
Yang has
vowed that Yahoo is viable as a stand-alone company. But
already, some shareholders have sued Yahoo for rejecting
the initial cash-and-stock offer, which was worth $44.6
billion but fell in value with Microsoft’s stock price.
Yahoo,
based here, is pursuing a limited advertising
partnership with Google Inc. and a tie-up with Time
Warner Inc.’s AOL, people familiar with the situation
said. It also continues to promote its turnaround
strategy amid falling confidence in Yahoo’s long-term
prospects and management after two years of eroding
financial results.
Google
and AOL declined to comment.
Now that
Microsoft has withdrawn, Yahoo management will have to
deliver a “transformational” partnership or deal,
Needham
& Co. analyst Mark May said Sunday.
A Yahoo
spokesman said the company was “exploring all strategic
options to maximize value for shareholders.”
Many
Yahoo shareholders favored a deal at around $34 a share.
Even those who wanted more still supported a Microsoft
takeover, analysts said.
“What we
really need to see is the Google deal. A lot hinges on
how good the Google deal is,” said the major Yahoo
shareholder, who asked not to be identified in order to
continue discussions with both companies.
Yahoo is
working intently to clinch the deal, which would boost
its cash flow significantly and allow it to invest more
in its own online advertising system. A two-week test in
which Google delivered ads on a small portion of Yahoo
Web searches performed “phenomenally,” a person familiar
with the situation said. Google earns about 60 percent
to 70 percent more on average for every search than
Yahoo does.
Such a
partnership between the two search leaders probably
would attract intense scrutiny from regulators. The
Justice Department has begun to look into the
relationship.
In the
absence of a Google deal, investors are bracing for a
steep decline in Yahoo stock. Shares, which have risen
nearly 50 percent since Microsoft made its offer, could
lose most of that gain. Analysts have estimated that
Yahoo shares would fall to between $20 and $25 if
Microsoft abandoned its bid. They had risen 7 percent to
$28.67 Friday in anticipation that a deal with Microsoft
was going to be sealed this weekend.
Laura
Martin, an analyst with Soleil Securities, predicted
that investors would knock off 28 percent Monday alone,
driving Yahoo shares down to around $20.
Trading
of Yahoo
Japan
Sunday afternoon on the Tokyo Stock Market telegraphed
investor frustration.
Dissident Yahoo shareholder Eric Jackson said Sunday he
planned to rally shareholders to withhold their votes
from all Yahoo directors at the company’s annual
meeting, which has not been scheduled. Jackson leads a
group of about 140 shareholders who together own 2
million Yahoo shares.
Such
threats could mean a bumpy ride ahead for Yahoo’s board
and management. Analysts expect a barrage of lawsuits in
coming weeks. Shareholder pressure still could force
Yahoo back to the negotiating table with Microsoft. |
