Yahoo's Microsoft Tactic: Delaying the Inevitable


When in doubt, delay! At least that appears to be the strategy at Yahoo where the company's board of directors has authorized a deadline extension for outsiders to nominate their own slate of directors, which would have been next week.

The new deadline will now be 10 days after the company announces the date of its annual shareholder meeting.

In case you think this could go on forever, remember that this clock indeed is ticking. Yahoo is incorporated in the state of Delaware, where bylaws dictate that a company must hold an annual meeting no less than every 13 months. Yahoo's last shareholder meeting was June 12, which means the next one can come any time between now and July 12.

In a statement, Yahoo said the extension would allow its board "to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest."

There have been several reports these last couple of days that has Yahoo engaged in advanced discussions with Time Warner to fold its AOL unit into Yahoo while TW takes a large, but still minority, stake in Yahoo as part of the deal.

No one is commenting, but it begs the question: AOL has suffered its fair share of problems trying to compete in the market. Yahoo has suffered its fair share of problems trying to compete in the market. Microsoft has suffered its fair share of problems trying to compete in the market. But Microsoft has offered nearly $45 billion, a 62 percent premium for Yahoo, so it can better compete in the online world, particularly against Google .

Yahoo has made no secret that it does not want to cozy up with Microsoft. Yahoo's Jerry Yang is Microsoft-averse.

But personal opinions, hopes, dreams and desires aside, can you honestly tell me that a Yahoo/Time Warner/AOL arrangement will be more lucrative for Yahoo shareholders than a 62 percent premium from Microsoft on the table right now? I mean, come on! That's a tough sell....unless...

Unless Time Warner decides to value its purported "minority stake" in Yahoo dramatically higher than $31 a share. I say dramatically because the minority stake ought to come at a premium since there's still the uncertainty that a Yahoo/AOL deal will actually be effective in the market. Microsoft is a sure thing: Yahoo shareholders get their money and they can move on. Deal done. Bird in the hand.

The New York Times says a combined Yahoo/AOL deal has the backing of Google, which holds a 5 percent stake in AOL. Well, duh. Google will back any deal for Yahoo that doesn't include Microsoft. Which could be a red flag for investors that if Google, which has to compete with whatever ends up happening to Yahoo, is giving the nod to this arrangement over one with Microsoft, it is, by definition then, the weaker competitor to Google. Which is the reason why Google is backing it over Microsoft's hostile bid.

Either way, Yahoo shares are climbing higher today, as investors bank on a bidding war, which Microsoft has said it has no interest in. Microsoft's blow-out offer right out of the gate is going to be tough to beat. Yahoo can keep trying, but sights are set, and the clock is ticking. Proxy war or not, Yahoo's shareholder meeting could end up being one of the hottest tickets in town.

Questions? Comments?