Tuesday, May 06, 2008

SJ Mercury News: Yahoo investors up in arms


By Pete CareyMercury News

Article Launched: 05/06/2008 01:32:43 AM PDT

Yahoo faced a shareholders' rebellion Monday as the stock market punished the pioneering Internet company for its weekend rejection of Microsoft's $47.5 billion bid.

One hedge fund manager said he was encouraging investors to vote against Yahoo's board members at the next annual meeting, which the company scheduled late Monday for July 3.

"I haven't spoken to one Yahoo shareholder who is happy," said Eric Jackson of Ironfire Capital, a small, activist hedge fund. Jackson said the dozen investors he'd spoken to were "upset, frustrated and wanting to know what they can do."

The Web pioneer's stock closed down 15 percent, or $4.30, to $24.37 a share, the first trading day after a Saturday morning meeting between Yahoo's two co-founders and top Microsoft executives left the two sides at an impasse over price.

Microsoft CEO Steve Ballmer called Yahoo CEO Jerry Yang on Saturday afternoon to say he was dropping his company's offer.

Still, Monday's close, while a significant loss, is higher than the bargain-basement level of $19.18 on the day before Microsoft announced its offer, indicating that some investors think Microsoft might come back with another offer.

The Sunnyvale-based Internet company now faces an uncertain future. Yang promised to make its Web sites more useful to users, more effective for advertisers and more friendly for software developers; others weren't so sure.

Yahoo Chairman Roy Bostock issued a statement Saturday that thanked "so many of our shareholders" for joining Yahoo's board in believing Microsoft's offer undervalued the company.
But one institutional investment manager noted that shareholders didn't make the decision on Microsoft's final offer of $33 a share.

"Jerry has not given the shareholders a vote in this," said Larry Haverty of Gabelli Funds' GAMCO Investors. "The shareholders never got a chance to say whether $33 was a good price or not, and people, including myself, are very skeptical about the forecasts he's put out."
Haverty said that had Gabelli been given a chance to take $33 "we probably would have, particularly if some of it was in Microsoft stock." Gabelli owns 1.2 million shares in each company.

There was still the possibility that the two companies would reconcile their differences and join forces, though Yahoo's reaction to the collapse of the deal made that seem unlikely. Citi Investment Research put a 15 percent probability on that happening.

Haverty said that Yahoo's new stock price reflects its fair value, rather than a bet by investors that Yahoo will change its mind and accept Microsoft's bid. But, he said, it is unlikely that Microsoft is "going away forever."

The long-term prospects for Yahoo are worse than ever, said securities lawyer Anthony Sabino. The company has turned down a lucrative offer and remains in play, he said.

In any resumption of negotiations, Sabino said, Ballmer could "play the spurned lover who storms away; and it is going to take a lot to get him back to the table."

Microsoft withdrew its final offer of roughly $47.5 billion late Saturday after a flurry of last-minute negotiations failed to produce a compromise price. Microsoft's original offer was $31 a share. Microsoft's Ballmer wrote in a letter to Yang that Yahoo wanted $4 a share more - in other words, $37.

"The spotlight will be on us - just as it has been for the past three months," Yang said in an e-mail to staff. The company will prove its worth "by executing against the strategies and priorities we already have in place, and by continuing to deliver indispensable experiences for our communities of users, advertisers, publishers and developers," he wrote.

Others were saying "show me," displeased that the firm turned its back on an offer that would have given shareholders a 70 percent premium over Yahoo's Jan. 31 share price.

"For you, me and the common investor, the best thing to do is stay out of the way," said Jeff Embersits of Shareholder Value Management.

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