There's that old saying that if six people say you're drunk, you can argue and argue and argue--slurring your words along the way--that you're not. But if everyone thinks you're drunk and you're the only one who disagrees, chances are you're drunk.
Which brings me to Yahoo . If the market says you're worth $20 a share, and your stock sits there, bouncing around in a fairly narrow range, but trending lower quarter after quarter, and touches a four year low, it's not because a single investor says the stock is worth $20 a share. It's the entire market that has determined the value. So Microsoft steps up and offers a Rupert Murdoch-like 62 percent premium over that price. And shares quickly scamper upward, toward that offer price, as the market, once again, determines the value of Yahoo's shares.
Yet in the midst of all these voices ascribing a value to Yahoo shares, agreeing on what these shares are worth, there's one lone voice disagreeing, and declaring that the markets have gotten it wrong; that Microsoft has gotten it wrong; that investment bankers and analysts have gotten it wrong. That Yahoo isn't worth $20 a share; or even $31 a share; or $35 a share. The lone voice declaring Yahoo is worth a whopping $40 a share or more, is--drumroll please: Yahoo!
Which leads me back to the "drunk" metaphor I opened with. Drunk with power, fleeting as it might be; drunk with delusions; drunk with ego. Drunk.
Yahoo released a letter this morning formally rejecting Microsoft's $44.6 billion offer saying the bid "substantially undervalues" the company. No surprise there. This is a negotiation. You'd expect the acquiree to do what it can to get the offer-price up. But as I've written earlier, there's a fine line between fiduciary responsibility to get a bid up, and running the risk of losing the offer all together because of ego.
The fact is, Yahoo shares plummeted by 40 percent in the quarter leading up to the Microsoft offer; and Yahoo's board feels Microsoft is taking advantage of the situation by low-balling a price. But it isn't Microsoft's fault that Yahoo couldn't get its act together and keep its share price propped up; it certainly isn't Microsoft's fault that it waited for Yahoo to become a dying-on-the-vine property before making its bid. And let's not forget: it's hard to classify Microsoft's bid as a "low-ball offer" when it's a 62 percent premium over the price Yahoo shares traded at the day the offer was announced.
There are rumors that Yahoo is trying to strike a deal to buy AOL. Or buy AOL and outsource its search business to Google . Or look for a new partner? Or maybe something else. What amazes me is the level of "scrambling" that seems to be going on inside Yahoo now. My question is, where was all the scrambling before the Microsoft deal was made public?
Where was the scrambling following Terry Semel's dismissal/departure last year? Where was the scrambling as Yahoo shares spiraled south? Did it take a hostile bid from Microsoft to light a fire under their collective butts? Because if that's the case, it's just tragic that Yahoo either didn't accept the magnitude of its problems, wasn't aware of them, or simply ignored them. But that's what it seems.
In its letter this morning, all three paragraphs of it, Yahoo says the Board of Directors is "continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders." But the company runs the risk of dithering through another major development happening right now, and being unable to act because it once again is plagued and paralyzed by indecision and slow reaction. The same thing happened in its competition with Google and Google ate Yahoo's lunch and stuck it with the bill.
Yahoo, you're drunk. Have a cup of coffee, sober up, wait for the Microsoft counter, and take the money and run. Your leverage evaporated as your stock slid. There's no shame in taking a $45 billion deal.
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