I can only imagine the number of bloody scalps on Wall Street tonight as investors scratch their heads over Yahoo's decision to align with Google.
To me, it comes down to simple economics: $47 billion vs. $800 million. Jackpot vs. Chump Change. Bird in hand vs. the mere potential of a payoff down the road.
Why the skepticism? Because after months of public and private feuding, negotiation, and hand-wringing, Yahoo's chairman Roy Bostock ultimately went back to Microsoft and said, ok, let's do a deal at $33.
This wasn't moments after Microsoft said its upped offer had expired. This was weeks after Microsoft said its offer had expired. Hardball at its finest. And dithering, fumbling poker by Yahoo at its worst.
Yahoo's entire negotiation stance was predicated on its own perceived position of power. Trouble is, that perspective was Yahoo's and Yahoo's alone. And that delusion of grandeur now appears to have cost the company $47 billion. It's like a bad game of Let's Make a Deal, and Yahoo saw that massive premium behind Curtain Number 1 and wanted to try for something even more.
Instead, it winds up with the $800 million booby prize, cedes search advertising to its next most bitter rival Google , and leaves all those shareholders playing the game at home wondering how such a massive grand prize could simply evaporate.
Sure the Google partnership might pay off. Some day. Analysts model that the arrangement could mean up to $900 million in new revenue over the next 12 months. Yahoo estimates $250 million to $450 million in incremental operating cash flow in the first 12 months after the partnership is implemented.
But here's the fine print: This deal ain't happening instantly. We already know that the Justice Department has expressed concerns over a partnership between these two, and while Yahoo claims it doesn't need regulatory approval, it's delaying the deal more than three months to give investigators a chance to look it over.
Also, according to the release: "The agreement allows either party to terminate the agreement in the event of a change in control of either party. The agreement also requires Yahoo to pay a termination fee if the agreement is terminated as a result of a change in control that occurs within 24 months. The termination fee is $250 million, subject to reduction by 50 percent of revenues earned by Google under the agreement. "
So if someone else steps forward with a new hostile bid that Yahoo is compelled to accept, tack on an extra $250 heavy to the new suitor's expense list.
I don't know. I've been hard on Yahoo these last few months because when you strip away all the complexities of a deal like this, it comes down to those simple economics. Or should.
Instead, it came down to ego and a do-anything/say-anything strategy to thwart a deal with Microsoft. Now, Microsoft has to come up with a new way to spend its $50 billion, and can probably grab Facebook for half what it was offering for Yahoo and still be better off.
For Carl Icahn, litigation will be his best friend as he'll likely sue Yahoo for breach of fiduciary responsibility and walk away with a big check that'll make this short stint as a Yahoo investor worth his while. And for Yahoo, the pressure's never been greater to perform. But with the executive brain drain still flowing in Sunnyvale because of the high level of disgust in Yahoo's lack of leadership and strategic direction, it's not clear the company will be able to.
And that leaves the shareholders. Reaching for another band-aid for those bloody scalps.
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