Reasonable vs. Ridiculous: The Yahoo Story

Yahoo!'s headquarters in California.
Paul Sakuma
Yahoo!'s headquarters in California.

I'm supposed to be off this week, but the latest developments in the Yahoo saga have dragged me back to my Blackberry.

The showdown between Carl Icahn and Jerry Yang now has a new date (Aug. 1) and new accusations. And these new gems further solidify Yahoo's ridiculous stance in its attempt to fend off the Microsoft bid; and further solidify Icahn's profile as the *gasp, reasonable one.

Why? Nevermind the negotiation styles of Yahoo and Microsoft. Forget for a moment that the company's board had one price it was willing to accept, but co-founders Jerry Yang and David Filo -- the ones sent to Redmond for the face-to-face with Steve Ballmer and therefore the ones that mattered -- had prices of their own. Forget for a moment that Microsoft apparently teased Yahoo with a higher counter but didn't want to put it in writing, so it really didn't count. Forget the 18 months of wrangling between these two. Forget the walk-away, and word recently that the two are trying to come up with some kind of vague "partnership."

Let's focus instead on the only real issue that matters: fiduciary responsibility. No big complexity here. And there are items simply too big to forget. Like the 61 percent premium Microsoft originally offered. Like the nearly 70 percent premium the offer could have swollen to. No real complexity here: Yahoo's board (or just Yang, I can't be sure) wanted more. Or just didn't want Microsoft at all. At the expense of the investors who own this company. Everybody wants "more." It's an American way of life. But at some point, "more" gives way to "best" and you move on.

We're learning from those court documents unsealed in Delaware that Yahoo was working on a way to thwart Microsoft's offers. Forget "poison pills." This was like a bullet to the head: had the Microsoft deal gone through, Yahoo was prepared to put in place a "retention" package for employees that would cost Microsoft an extra $2.1 billion to $2.7 billion in expenses if Microsoft came in ultimately at $40 a share.

This all might sound like Yahoo is looking out for its workers. And I'd certainly like to think that's the case. But at the expense of shelving a deal with Microsoft entirely? And if Yahoo truly cared about its employees, why was the company scrambling to put a plan like this in place in the face of the unsolicited bid from Microsoft? The poison pill was adopted years ago. This bizarre employ "retention" compensation plan should have been adopted then as well. As it is, the court papers, which include emails from several top Yahoo execs, smells of a coterie of collusion: what exotic ways can we we thwart this plan, whether it makes financial sense for our investors or not?

As it stands: still no plan; still those pie-in-the-sky financial outlooks that few on the Street believe in; still no partnership with Microsoft; no other suitor willing to come forward; Jerry Yang's claims last week in Carlsbad that he's still the right guy at the right time for Yahoo; and still a stock stuck in the mud, propped up only by the promise of better days ahead not based on Yahoo fundamentals, but the possibility of partnership or take-out by someone else. I return to "fiduciary responsibility."

Says Carl Icahn to the Wall Street Journal: "I am amazed at the lengths that Jerry Yang and the board went to entrench themselves in this situation."

He's "amazed" because he can afford to be. Other investors, watching Yahoo's decline, squandering its brand and its half-billion monthly visitors, might just be sickened by all of it.

Questions? Comments? TechCheck@cnbc.com