BusinessWeek: Motorola: Left to Its Own Devices

The equipment maker's inability to find a buyer for its beleaguered cell-phone unit revives the urgency of reforming the division from within

February 25, 2008, 12:01AM EST
by Olga Kharif and Roger O. Crockett

To many the recent announcement that Motorola (MOT) was exploring options for its troubled handset division was seen as a sign the once-legendary business would soon be sold. That seemed a better outcome than, say, a spinoff or internal overhaul for a business mired in losses.

Yet almost a month later, despite rumors of acquisition interest from such heavyweights as Korean electronics maker LG and U.S. PC giant Dell (DELL), bankers, analysts, and industry executives close to Motorola say a sale is neither imminent nor likely. Several Asian handset makers have publicly said they're not interested (BusinessWeek.com, 2/4/08). One banker gives a sale a "50-50" chance, at best.

And while potential buyers may have run proposals by the phone-making giant, none appears willing to offer as much as Motorola's management is seeking. Analysts say the beleaguered business is worth no more than about $8 billion—a far cry from the $10 billion it was once suggested that Motorola might be able to fetch. The lack of acceptable bids has added renewed urgency to Motorola's backup plan: an in-house revamp. Improved performance would help Motorola sell the division at a more attractive price later, spin off a higher-value asset, or even hang on to a revitalized handset maker.

A Fixer-Upper

From early in his tenure, Motorola CEO Greg Brown has given strong signals he's intent on tuning up the cell-phone business. He has taken operational control of the unit, replacing former head man Stu Reed, who has left the company. Those familiar with Brown's plans say he has been weeding out underperforming executives and those he had no hand in hiring. Meanwhile, he's attempting to attract the talent Motorola desperately needs. "He knows what to do to fix this business," says Robert Laikin, CEO of Brightpoint (CELL), a major cell-phone distributor.

Plenty needs fixing. In the fourth quarter, handset sales tumbled 38%, to $4.8 billion, from a year earlier, and the division lost money. Motorola's share of global cell-phone unit shipments dropped from 22% in 2006 to 13.8% last year. Had Motorola found a buyer, "they'd certainly not be selling on a high note," says Todd Rosenbluth, an analyst with Standard & Poor's.

Brown may also need to spend big to ramp up handset production. Mark McKechnie, an analyst with American Technology Research, estimates the company needs to spend $500 million to $2 billion to come out with a new and exciting product line. Adds Motorola shareholder Eric Jackson, president of Ironfire Capital: "The R&D pipeline was really bare [six months ago] and still is." As of December, Motorola had $2.75 billion in cash.

Collaborative Effort

Although a deal isn't imminent, the prospect of a sale or at least a partnership is not dead. Banking sources say major private equity funds, from Blackstone Group (BX) to Silver Lake, are circling the company. And lots of private buyers may be interested. Some Chinese vendors such as ZTE have long wanted to conquer the U.S. market and have talked about cultivating relationships with Motorola. "ZTE often talks with other leading telecommunications manufacturers around potential opportunities for collaboration," ZTE said in a statement.

Company officials declined to comment on a potential alliance with Motorola's phone unit. Motorola told analysts during the industry's big trade show in Barcelona earlier this month that it has two parties interested in the business. Company officials would not specify which, but they acknowledged looking into partnerships as well as a sale. So it's conceivable that Motorola might enter into a joint venture with a company with a proven track record in consumer marketing. Potential partners include LG, Samsung, and even Google (GOOG).

Pressure to Act Fast

Nor is anyone ruling out a spinoff, now or in the future. These kinds of spinoffs are in Motorola's blood: Back in 2004, the company spun off chipmaker Freescale Semiconductor, earning its investors hefty short-term returns. Freescale was later snapped up in 2006 by a consortium of private equity firms. "We think the most likely scenario is a spinoff to shareholders," says Richard Windsor, an analyst with Nomura. "It gives [shareholders] an option to stay or go."

Unfortunately for Brown, many investors are choosing to go. The company's stock is down 30% since the beginning of the year. Most analysts don't expect Motorola to sell more than 30 million handsets this quarter, which would mean even further erosion in share. "They've got to do something quick," McKechnie says. "The asset is deteriorating."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore. Crockett is deputy manager of BusinessWeek's Chicago bureau

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PBS MediaShift: Gadfly 2.0: How One Investor Used Social Media to Shake Up Yahoo

by Mark Glaser, 12:34PM

Feb. 21, 2008

If you’re following the twists and turns of Microsoft’s hostile bid for Yahoo, you can’t escape one name that keeps popping up in the media: Eric Jackson. As an activist shareholder in Yahoo, he has become the voice of the opposition, calling on Yahoo to accept Microsoft’s takeover bid — or any reasonable bid. Last year, he was instrumental in raising a ruckus online over Yahoo’s poor stock performance, and helped get Yahoo CEO Terry Semel ousted.

But what’s amazing about Jackson is that unlike the big-name activist shareholders such as Carl Icahn and Daniel Loeb who have huge war chests to buy up stock, Jackson is a small fish. He only owns 96 shares of Yahoo stock. Where Jackson has innovated is in using the tools of social media to gather support from other shareholders and get the attention of the media to make his case for corporate change.

He started in the summer of 2006 with a blog called Breakout Performance to tout his corporate consulting business. After a blog post about Yahoo attracted more traffic than his theses about corporate governance, Jackson began his campaign to get Yahoo to change its strategy, a “Plan B for Yahoo” that was eventually loaded onto a wiki. He shot some videos and uploaded them to YouTube, and used a web widget called YouChoose.net to get people to pledge their Yahoo shares to his cause. Last June, Jackson went to Yahoo’s annual shareholder meeting to confront Semel in person.

After enough people voted “no confidence” in Semel and some board members at that meeting, Semel stepped down from the CEO post a week later. Jackson justifiably took credit for leading the charge against Yahoo management in the media and online. Later, he followed in the footsteps of financier Carl Icahn in calling for Motorola CEO Ed Zander to step down — albeit with much less money invested in Motorola than Icahn, with just 134 shares. But even though Zander did vacate the CEO post, Motorola’s stock continues to hover near its historic low point.
So how did Jackson, 35, with a PhD in business management from Columbia University, get so much attention with so little stock in those companies? In a wide-ranging Q&A, Jackson explained how the media was drawn to him as the consistent “other side” of Yahoo’s financial story — plus, he had the social media hook, too.

“When I launched the campaign [against Yahoo], I thought I could write about it on my blog,” he said. “But if I was a reporter [covering this], what would make this story interesting to me? Some guy writing a blog is not that interesting. A blog is great, but what if I also did a YouTube video and tried to use more social media? Then it wasn’t just a David and Goliath, individual-investor-rising-up story, but it’s also a novelty, new technology, social media story. I had never used YouTube before, so I went out and got a $30 webcam and hooked it up to my laptop and recorded myself speaking my blog post.”

But Jackson found out that social media was more than just a good story angle to get press coverage. Eventually, he got 100 Yahoo investors to pledge their shares to his Plan B cause through YouChoose.net. People helped give valuable feedback to his Motorola Plan B on a wiki, and a Facebook group helped spread the word about his actions.

Jackson has parlayed his success with Yahoo into a new activist investment firm he runs called Ironfire Capital, though it has less than $5 million in funding so far, he said. Jackson is convinced that other individual investors will take similar coordinated online actions against companies that are underperforming, bringing a democratization and decentralization of power to corporate governance similar to what’s happening to the media industry.

The following is an edited transcript of our phone conversation and email correspondence, touching on Jackson’s action last year against Yahoo and his current push for shareholders to accept Microsoft’s bid.

As an investor, what is your strategy? Do you hold the stock for a longer period of time or sell it after you turn it around?

Jackson: I typically hold stocks for one to two years. So there’s an expectation that I’m not someone who’s trading in and out, I’m a holder of the stock and I have the long-term interest of the company in mind. I’d like to see the value of that company increase over that time. If it does on its own accord, that’s great, and if I do get involved as an activist, I’d expect that the effects of that activism would be realized in the stock price over that one-to-two-year time period.

Activism doesn’t have to be public and critical. It can also be quiet and private. The philosophy is that if you speak up, and you can make some compelling arguments, then other shareholders will pay attention and agree with you. You can end up, as a very small shareholder, with less than 1 percent, having an argument that ends up being followed and believed in by quite a number of shareholders, thereby pressuring the board to make those changes.

How did you initially decide to take on Yahoo?

Jackson: I was watching Yahoo from afar as an individual shareholder in the fall of 2006 and was really disenchanted with the direction of the company. I said to myself, ‘Here’s a perfect target for an activist investment firm’ and it got me to thinking. Even though I didn’t have an $8 billion investment firm, I thought that the chances were good that there were other investors like me who were upset. And I thought I could use social media, I had started a blog just six months before that. I thought, with blogs in the political realm, there are examples of people coming together with a grassroots movement behind a political candidate, and suddenly this phenomenon brings a tremendous amount of attention to that particular candidate and adds to that momentum.

I thought, ‘Why couldn’t that happen in a shareholder context if you had a company like Yahoo that is well known and well followed and people have passionate opinions about it?’ No one would have cared if I went after a shipyard company. Yahoo is kind of like the Paris Hilton of the business media, it seems like magazines and newspapers love writing about Yahoo.

When you started the blog was it for Yahoo in particular or was it for other reasons?

Jackson: I started the blog for other reasons. I was a strategy and governance consultant, and I still do that today. I started the blog as a way to write about topics that I consult on [so] it could bring more visibility to me and my consulting firm. I started it in the summer of 2006 without getting much traffic at all. I noticed that certain topics would suddenly get more traffic than others. I had written a post about Yahoo kind of randomly, making the point about leadership in general, [writing about] Terry Semel, the CEO from 2001, after Yahoo had crashed from the dot-com bubble. He had been getting credit in 2004 and 2005 as being the steady hand, gray hair, Hollywood exec who showed the kids what leadership was and how a real organization should be run. And he was the reason Yahoo got out of its swoon.

But in my eyes, observing what he had done, it didn’t seem that Yahoo had succeeded because of his leadership, but more in spite of it. What happened at Yahoo, the recovery, would have happened no matter who was in his position because of the general resurgence in the Internet and the advertising market. That blog post generated a lot of hits and comments, and that was interesting to me. It’s a high profile company and a lot of people care about it, so if you started a campaign about it you could tap into passionate people.

So because you didn’t have a lot of money invested in Yahoo, was the motivation for your activism to make a point about leadership?

Jackson: Initially I bought 45 years of Yahoo, and then I bought 51 more shares, so today I own 96 shares of Yahoo. So that’s worth about $2,500, so clearly it’s not about the money. When I started it, I had no idea if I would be successful or not. The reason I did it was to see if I could get people engaged. Truly what I was hoping for was to get some people together and put a plan together for what Yahoo should do if we were running the company, and maybe we could meet with them and they would agree to implement one or two ideas. And if that happened we could claim victory and show we made a difference. And it would be the first of its kind, where individual investors took this idea of activism and got a company to change.

I started a Facebook group, and later on, someone from the company Wikia contacted me and said, ‘This is cool that you have a Plan B for Yahoo.’ I had put up a seven-point plan on my blog and invited people to comment or criticize it or add to it. I was hoping it would further engage people in the group. They would feel they were part of the process and other people would have better ideas than me, too. That’s one of the tenents of Web 2.0, that the group is smarter than any individual.

So the people from Wikia said, ‘We could set up a wiki for you and people could more easily edit that.’ So we added that to the mix a few weeks later, and someone from a company called YouChoose.net contacted me. They encourage people who want to start a petition or cause to go to the site and get people to join their cause. They said they could help me create a widget for my site so people who want to join the cause could put in their information, say how many Yahoo shares they own, and it would instantly go into this graph showing support over time.

All those things were novel and added to the campaign. Immediately we had 25 people pledge with 50,000 Yahoo shares to the group in the first week. And the New York Times, Dow Jones and Red Herring wrote articles about it. It was a virtuous circle where someone would write about it in the press, and then people would go to the site and pledge shares, and then after more people signed up, the press would write more about it. It slowly built up over the coming weeks.

How did you know that these people really were Yahoo shareholders? Did you verify it in some way?

Jackson: It’s an honor system, but we follow-up with them later to verify. We have had bogus pledges in the past. Usually, they’re easy to spot because they have a very high number of shares and have a funny name for the pledger. In those cases, we follow-up with them by email and ask them to verify it. If they don’t respond, we delete their pledge.

We ask them for name, full contact info, shares owned, when purchased, etc. We haven’t made them sign legal docs or ask them to send us photocopies of shares. We simply put the detailed list together and receive verification from them that they represent that they truly own their shares.

Were the Web 2.0 things actually working at spreading the word or were they just helping in getting attention in the press?

Jackson: I had the feeling through the whole campaign and even now, I really feel it’s so early
days with this. I really believe in five years, activism will happen almost exclusively over the Internet. There will be forum groups and not just Yahoo Finance boards where people complain and say, ‘The people who run companies are bums.’ They will really exchange ideas with video messages and people will become more sophisticated as individual shareholders.

Did it matter? Yes it mattered, but we just got glimpses about how much it could matter. When I first put the Yahoo Plan B on the wiki we didn’t get many comments. It had been up on my blog before the wiki and people had left comments on the blog; some liked it and some criticized it.

Last fall, though, I did a wiki for a campaign with Motorola, and in that case I used the wiki right from the beginning and we got quite a few constructive comments on the wiki. So the tool was important, and it wasn’t just about having a nice story. There were some tools that were less valuable. The Facebook group, we could get people to join it, but there wasn’t much more they could do. We referred people from there to the blog, and it was a way for people to hear about us, but there wasn’t really an exchange of ideas there. That was an example of a tool that the press mentioned but it didn’t make that much of a difference.

You mentioned that the Yahoo campaign was the first case of individual investors making a big difference at a public company. Was that what happened last year with Terry Semel leaving the company?

Jackson: Yes, that’s what happened. There have always been activist investors at companies. They’re usually called gadflies, they are usually old ladies or old men who show up at annual shareholder meetings and shake their fists and cause a scene. At the end of the day they are only representing themselves so they are usually forgotten. This was the first time that an individual investor — not an institutional investor — assembled a group and voiced an opinion and had other people listen to it, and many people agreed with it and it definitely had an effect.

Leading up to the annual meeting in June last year, Yahoo did invite me to meet with them at their office. I did visit them and met with the general counsel, Michael Callahan, and a couple people who worked for him. I was hoping it would be this meeting where they might agree with two of our nine points, and we could be really happy. But it turned out, they were very cordial, and they just listened to me presenting our positions. But they didn’t really do anything afterwards.

Because of that non-action, I encouraged other shareholders to vote against board members at the annual shareholder meeting in June. They have a rule that if any one director got less than 50% support from shareholders, they would have to resign. So my hope was that if we got a substantial ‘no’ vote then Yahoo would have to listen to that as a big sign of shareholder dissatisfaction. So I spoke out, and was interviewed in the press because I spoke out, and I created a couple YouTube videos that I modeled after negative political campaign ads, saying why you should vote ‘no’ on a proposition or against someone. They were half-humorous but effectively delivered the message.

All the big institutions would say to me, ‘Listen Eric, we’re not going to join your group because we don’t do that, but we think what you’re doing is great, we’re making similar points ourselves to the Yahoo management, so keep their feet to the fire!’ At the annual meeting, there was a large ‘against’ vote. Some of the directors got 33% or 35% against votes, which is quite high for those types of votes. We were effective as an individual shareholder group, because we voiced a strong opinion and did it in a professional way. It wasn’t in a way that people could dismiss as crazy, ‘Oh don’t pay any attention to them.’ Our group did get 2.1 million shares pledged to our group, which is a lot but still was only 0.2% of total Yahoo shares outstanding.

When doing a campaign like this, if you don’t have the financial muscle, I guess the media exposure is really important.

Jackson: For sure. The media exposure was as important as the actual people who supported the campaign. In the days leading up to the annual meeting, a lot of press people were writing stories or doing TV pieces in anticipation of the meeting. And everyone in the press wants to give both sides to the story. For every story about a company there is the company line, and then an analyst saying why it isn’t that great. So I became kind of the natural person they ended up calling for the opposite view.

CNBC interviewed me the day before the meeting, I had this five minute interview. It was funny, when I went to the annual meeting, I saw the Yahoo general counsel [Callahan], who I had met in April, and he came over to me with this smile on his face. ‘How were you able to do all this? We sat around yesterday in the board room and saw you on CNBC and couldn’t believe it. How did you do that? Did you hire a PR firm?’ There’s no question the media exposure helped.

There’s a snowball effect where other media people see you quoted and then they call you to get a quote too.

Jackson: Yes, you gain legitimacy through the prior coverage in the press. And it feeds on itself. In the last week, I took this Yahoo group that had 100 shareholders and I’ve talked to several of them last week. We were all nervous that Yahoo would reject Microsoft’s offer, which they did. We believe that Jerry Yang doesn’t like Microsoft and doesn’t want to sell their baby to Microsoft and we were nervous as shareholders that they would try to sell us on staying independent, and we didn’t think that was smart. Rather than sit back and hope, we wanted to be part of the debate and hope it would resonate with other shareholders. We said we want to do a deal now, whether it’s from Microsoft or someone else.

I typed up a blog post and recorded a video and put it up there and contacted some people in the press and they wrote about it. It’s interesting the way people portrayed me this year vs. last year. They gave us a lot more weight than they did before. So I guess it builds on itself, and in six months they would give us even more legitimacy.

Why do you think Yahoo should take the offer from Microsoft?

Jackson: When I got involved last year, I thought Yahoo had great potential to stay independent. They have great people, great engineering talent, and great traffic, too. So that’s why it was so frustrating seeing them bumble around. I was hoping an activist campaign would shake them up and they’d do the things to stay competitive and independent. Even though our group could claim victory that Semel quit in June, the board stayed the same, they didn’t ask anyone else to leave. They did reduce some of the overlapping divisions in the company but not enough. Jerry Yang, who I have huge admiration for, I was hoping he would be more decisive and faster moving. And he’s been the opposite, and has been incremental and plodding and not very clear and articulate in charting where the company is going.

Because of that plodding style, he lost the trust of people on Wall Street and let the stock price drop to the level that Microsoft made the offer. They backed themselves into this situation. I thought Jerry Yang could have laid off a lot of people when he took over, outsourced search, and done some exciting things, but they didn’t. Given that Jerry and the board have been bumbling along for the last four years, I don’t have confidence that they can be successful running this company independently or combining their assets with AOL or MySpace. If I had a choice of taking $31 or higher from Microsoft or believing that Jerry will be able to turn the company around and get the stock price back up beyond $31, I think the right thing for shareholders is to get the money now.

So how many shares do you have pledged now for the Microsoft buyout?

Jackson: Since we posted it, we have another 30 pledgers with 100,000 shares. So that brings us to 2.2 million shares. It hasn’t gone up dramatically. I would hope that, if not in this campaign, that in the future, this type of thing with individual shareholders banding together would happen more often. It was reported that Steve Ballmer met with Yahoo’s biggest shareholder, Capital Research, and he was selling the deal. When you think of all the individual shareholders who are out there…if they join together, they could have a group two or three times the size of Capital Research and have the same type of power. With the tools of the Internet, making that happen is more feasible than ever before. People just don’t realize the power that they have. There’s nothing special about me.

A couple months ago, I was on a Yahoo Finance message board for the company Palm, and someone wrote this thread saying, ‘Have you heard about this guy Eric Jackson and his Plan B group and he got Terry Semel fired? We need to do that with Palm, we need to get an Eric Jackson to help us out!’ I thought, there’s nothing special about me. Any of these guys writing on this post could start their own Plan B, start a wiki and make it happen. A lot of people don’t think that way. I would hope that five years from now, more people will think that way and there will be more case studies to give inspiration to people to do it. The more people get engaged and speak out, the healthier our capital markets are.

*****

What do you think? Will social media allow more people like Eric Jackson to make a stink over public companies that are performing badly? Can they really change the slow performance of boards? Share your thoughts in the comments below.

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The Breakout Performance Index: Trial Version and Sample Report

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Dow Jones: How Yahoo Went From Web Star To Microsoft Prey

February 19, 2008: 03:10 PM EST
SANTA CLARA, Calif. (Dow Jones) -- Two years ago, Yahoo Inc. acquired a vast patchwork of commercial lots in the heart of Silicon Valley, a prime location that local officials hoped would become home to thousands of new employees.

But now the lots -- part of a $112 million property acquisition in 2006, according to regulatory filings -- sit partially abandoned and in varying states of disrepair, a 10-minute drive from Yahoo's Sunnyvale, Calif., headquarters.

Rather than bulking up with staff, Yahoo (YHOO) is shrinking. The Web portal recently laid off roughly 1,000 employees in a cost-cutting move and is scrambling for alternatives to fend off an unsolicited takeover bid by rival Microsoft Corp. (MSFT)

"They stated at the time they were looking for some long-term flexibility," Santa Clara deputy city manager Carol McCarthy said of Yahoo's purchase of the lots. "It's not unusual for companies to buy large parcels of land thinking they'll grow into it."

Until roughly mid-2006, Yahoo had every reason to believe its future was bright as a premier destination on the Web. But its more recent past has been rife with destructive technology misfires, mismanagement and ego clashes, according to interviews with former executives and employees.

While Yahoo garners a large online audience, it has still not managed to turn one aspect of its business, search advertising, into the sort of wild growth phenomenon showcased by arch-rival Google Inc. (GOOG). In response, Yahoo has doubled down on what many saw as a losing proposition: beating Google at its own game.

Failed payoff

To do this, Yahoo has since 2005 developed a technology dubbed "Project Panama," meant to increase the relevance of search results, and in turn boost revenue from users clicking on sponsored links. Panama, however, has been largely ineffective to date. In 2007, Google managed to receive 71.2% of U.S. search advertising revenue in the U.S., while Yahoo saw a mere 8.9%, according to eMarketer Inc.

Meanwhile, Yahoo's management has become obsessed with pouring more money and resources into Panama and search, while neglecting Yahoo's other businesses, such as graphical display advertising, said a former senior executive who asked not to be identified.

Yahoo President Sue Decker, a former Wall Street analyst, has been particularly committed to investing in search at all costs, because she's enamored of the easily measurable financial results it produces, she said.

But Wall Street has been largely unimpressed with both the timing and effectiveness of Panama. Cowen & Co. analyst Jim Friedland said that "Panama and their investment in search came way too late. Google had already won the war."

A Yahoo spokeswoman declined to comment.

During a conference call accompanying Yahoo's fourth-quarter earnings report in late January, Decker told analysts that Panama was showing results -- thanks to the technology, she said, U.S. search revenue on Yahoo sites grew more than 30%.

But Decker's update quickly got obscured by the subsequent melee. Two days after the earnings report and conference call, Microsoft (MSFT) disclosed its $ 44.6 billion acquisition offer.

Lack of focus

Peter Sealey said he was surprised when fellow former Hollywood film executive Terry Semel took the CEO job at Yahoo in 2001.

Sealey, who was president of marketing and distribution at Columbia Pictures in the late 1980s, said that while at Warner Bros., Semel was part of "the best management team in the film industry." But Semel never seemed to have the same touch at Yahoo, Sealey said. "Terry brought Warner Bros. 360 miles north, and it didn't work."

Now Sealey, and adjunct professor of marketing at Claremont Graduate University in Claremont, Calif., said he uses his old rival's missteps at Yahoo as a cautionary tale for students.

For example, Sealey said Semel's increasing drive to turn Yahoo into a premier player in search was undercut by his reluctance to give up on its future as a broader media company. "You can't have a more egregious error than the CEO having an incorrect vision of the business model of his company," he said.

Former Yahoo software engineer Michael Temkin said that this lack of focus was apparent to most employees.

"Google is highly aware of how they make money internally, they have the ability to go and try a lot of different things, but at the end of the day they know their money is coming from search," Temkin said. "Yahoo's management has not done a good job of communicating how they make money. Yahoo is not a search company, it's a content company, and it should be focusing on that audience and how it can monetize it."

Temkin said that another issue Semel could have better addressed was the never-ending turf war among different management teams.

While working in a mobile phone software group that utilized content from many other parts of Yahoo, Temkin said he saw first-hand the difficulties different divisions had working together.

"The lack of focus made it impossible to just get something done," Temkin said. "People had ideas, and people internally were trying to innovate, but pretty much that got squashed across the board. It was not the place I'd hoped it would be."

Temkin and six colleagues left Yahoo to join a small San Francisco-based mobile phone game company in 2006. Yahoo then sued them for allegedly attempting to steal the company's intellectual property, though that case has since been settled.

Semel left the company more recently, resigning as chairman shortly before Microsoft's acquisition bid was disclosed earlier this month. Semel had stepped down from the CEO job in June, when he was replaced by company co-founder Jerry Yang.

Cowen & Co.'s Friedland said Semel may have simply started too late to reverse Yahoo's course. It had already dedicated too much energy to gathering content for users of its finance, sports and other sites, he said, in order to properly address the search market.

"Yahoo needed to recognize in 2000 or 2001 that the world was going to go toward search, and there was more money to be made by creating a search engine than actually doing content deals," Friedland said. "The bottom line is the Internet has changed and consumers have changed."

Saying goodbye

For investors, Yahoo's recent history has been trying.

Eric Jackson, a Yahoo shareholder who has been a vocal critic of the company's management, said it's beyond salvaging as an independent entity. Jackson is leading a group of about 130 other shareholders with roughly 2.2 million shares in advocating for a sale of Yahoo.

"We want to sell whether it's to Microsoft or to another party that makes a better offer," Jackson said. "What we don't want to do its go along with an independent Yahoo strategy."

Jackson said he was particularly disheartened by Yahoo's response to the circulation in 2006 of the so-called "peanut butter manifesto," an exhortation by senior vice president Brad Garlinghouse for the company to "get back up" from its malaise and refocus.

Garlinghouse's memo was later leaked to the media.

"That was a warning sign that senior people within the company thought there were problems," Jackson said, "and yet the response by management was an early December 2006 reorganization that changed peoples' positions at the top, but really didn't address some of the underlying problems."

Jackson said he has also been disappointed with "mismanaged expectations" for Panama.

"They gave this expectation that once Panama was fully online it would dramatically increase revenue per search," he said. But "by spring of 2007 it really wasn't delivering as promised, and everyone stopped talking about it."

Friedland noted that Panama has in fact been showing results -- but too little, and too late. The irony now may be that it is Microsoft that stands to be the prime beneficiary of all of the resources poured by Yahoo into the technology.

Temkin, the former Yahoo mobile software engineer, said he thinks Yahoo "still could be a great company," thanks to its deep pool of talent. But with Microsoft bearing down, that talent is increasingly headed for the exits.

Former Yahoo vice president Bradley Horowitz announced his departure in a blog post Thursday. "I wish I were leaving with Yahoo on top of the world," he wrote. "I thought that since so many people were leaving on Tuesday, it'd be a good day for me to slip out unnoticed too." Horowitz wrote that he's taken a job at Google.

Temkin, who is now chief technology officer at the San Francisco company he joined in 2006, Hands-On Mobile Inc., said he would welcome any Yahoo engineers now looking for new jobs.

"There are a lot of talented people there, I'd love to find my former colleagues and give them a chance to do something innovative here," Temkin said.


(END) Dow Jones Newswires
02-19-08 1510ET
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Yahoo!'s Board Can Do the Right Thing

For some reason, the New York Post continues to get juicy tidbits leaked to it about 3 times a year. People whispering in the ear of Kara Swisher and Kevin Delaney I understand, but the New York Post? Good for them, I guess.

Today's tidbit in the Post - if it is true, although it certainly seems plausible to me -- is that Roy Bostock and Ron Burkle are confused and put off by Jerry Yang's "emotional" rejection of Microsoft's offer for the company. Robert Kotick and Eric Hippeau are also supposed to be on Jerry Yang's side, according to the article.

It wouldn't suprise me if this was in fact Jerry Yang's reaction. Last month, 3 days before the surprise bid from Microsoft, I was asked by TheDeal.com's David Shabelman whether I thought Yahoo! would sell itself to the company from Redmond:

"I honestly believe that Jerry Yang and David Filo have no interest in selling the company," he said. "Other people could decide differently, but they're pretty big shareholders and carry a lot of weight. It's not going to change shareholders calling for a sale, but I think people underestimate how the two co-founders are so against a sale."

Last year, leading up to Yahoo!'s annual meeting, I promoted the idea that other Yahoo! shareholders should consider voting "against" 7 of the 10 directors on the Board -- in order to force some much needed change in the company. The only directors who I didn't think should go were Jerry Yang, VJ Joshi, and Ed Kozel (primarily because Jerry was a co-founder and Joshi and Kozel had actually purchased shares in the company fairly recently, instead of just selling or vesting).

I wasn't the only shareholder who felt angry at the board, as this review shows. The Compensation Committee members (Bostock, Burkle, and Art Kern) each received at least 31% of shareholders voting "against" their re-election. However, all directors received an abnormally high percentage of shares cast "against" them.

It's because of this high protest vote by shareholders that I've said it's now ironic that we - the shareholders and owners of Yahoo! - must sit back and await the decision of the Yahoo! board on what will create the most shareholder value for us. I - and several supporters from last year's "Plan B" group - became very concerned when we heard it leaked to the Wall Street Journal last Saturday that Yahoo!'s board would reject Microsoft's offer. The decision seemed at odds with the board's fiduciary responsibility to us to create the highest possible value for our shares.

Therefore, we've relaunched our "Yahoo! Plan B" Group to unequivocally state that we want Yahoo! to sell out now (whether to Microsoft or someone else at the highest price possible) to maximize the value of our shares in the here and now. We absolutely want no part of an independent Yahoo! whether it's as a $17 a share company pre-bid or even if News Corp took a 20% stake.

I don't care if the best is yet to come for Yahoo! I don't care if Yahoo! truly reaches its ambition of getting on every advertiser's "must buy" list (which really means Yahoo! hopes to make advertiser's say, "well, we're done; we've just decided to do all our paid search stuff on Google.... Hey, maybe - to keep Google honest - we should throw a couple of bucks at Yahoo! too?") or becoming my "start page." I want to cash out, hopefully at $40, definitely at $36, and maybe even at $31. We don't want to crouch down in our airline seats, with our hands clamped behind our necks, preparing to drop back down to $18 and say, "alright guys, go to it, and get this puppy to $50 as quick as you can."

Creative deal-making which combined the assets of Yahoo! with MySpace, Facebook, eBay, etc. all would have been welcome -- and probably easily approved -- by shareholders prior to February 1st at 6am et (before the Microsoft offer arrived). Since that offer was put out on the table (clearly and cleanly dangled in front of us), we understandably want that or better -- not less and more complex. Yahoo! doesn't do complexity well.

It's nice to know that there are some Yahoo! directors who understand this line of reasoning. I applaud Bostock and Burkle if the Post story is true. They - and other Yahoo! directors - have the chance at a major do-over here in the eyes of us, the shareholders. They can and should do the right thing, by sticking to their guns and forging ahead in our interests.

Where will the other Yahoo! directors fall in this "divided" boardroom? Wilderotter -- the newest Yahoo! director -- clearly must see this offer with the freshest eyes. As an old-timer (14 years on the Yahoo! board, just like Hippeau), I would guess Kern is siding with Jerry. Ed Kozel - although friendly with Jerry - is one of the most level-headed members of this board, I have heard from someone who knows. Level-headed does not equate with "emotional." Joshi and Wilson are quieter but - I suspect - more open to a deal than not. [Kara Swisher disagrees with me on Kozel and Joshi. She puts them squarely "on the fence."]

So, if you do the numbers, this board should do a deal. That's what their shareholders want. Jerry Yang and David Filo are amazing people. Their "baby," that has grown into a 14,000 person company and one of the most trafficked sites on the Internet in 14 years, is a remarkable accomplishment with great assets. However, we - the shareholders - are now the owners of this company and we should decide how we want to see value created from our investment. We will see the most value from a deal now -- and that deal will most likely be with Microsoft.

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San Francisco Chronicle: Yahoo partisans go online with buyout opinions

Ellen Lee, Chronicle Staff Writer

Thursday, February 14, 2008

From his bedroom in Naples, Fla., Yahoo shareholder Eric Jackson stares into the camera and calls on fellow investors to join his campaign to push Yahoo Inc. to accept Microsoft Corp.'s $44.6 billion unsolicited takeover bid.

"We do not have to sit back as shareholders and wait for whatever plays out," he says in his video, called "Yahoo Shareholders in Favor of Selling," which has generated more than 700 views on YouTube.

Jackson's clip is among dozens posted on the video-sharing site by Yahoo shareholders and netizens who refuse to let the multibillion-dollar deal play out in secret board meetings and negotiations.

While corporate officials try to win over large shareholders, everyone from loyal customers to frustrated shareholders to the corporations themselves are chiming in on blogs, podcasts, Facebook and just about every channel the new media has to offer in hopes of swaying the decision-makers.

"The nature of the conversation has become bigger, and the number of people participating has increased," said Shel Holtz, an independent online communications consultant in Concord. "You combine that with people being passionate about the properties they use, and you're going to see a lot of conversation here."

On Facebook, member groups include "Microsoft, leave flickr alone," "Yahoo don't sell out to Microsoft" and even, "Flickr no se vende a Microsoft."

And it's only natural that the two tech titans facing a possible merger would tap the very resources they helped develop and foster.

"So much of their constituents, their partners, employees and shareholders all exist online," said Michael Robinson, senior vice president at Levick Strategic Communications, a crisis management firm. "This is very different than if you had two chemical companies trying to merge."

The opinions started flying from the beginning.

Microsoft, which wants to go head-to-head with Google in online advertising, announced its unsolicited $31-per-share offer to acquire the Sunnyvale Web portal on Feb. 1. Yahoo rejected the offer on Monday, saying the price doesn't reflect the company's worth.

Microsoft vows to continue its acquisition attempt, which could turn hostile, and Yahoo is searching for a white knight to rescue the company from Microsoft's clutches.

Days after Microsoft made its overture, rival Google waded in - on its corporate blog. "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" asked David Drummond, Google's senior vice president of corporate development and chief legal officer at googleblog.blogspot.com.

Yahoo is posting updates on its blog, Yodel Anecdotal, at ycorpblog.com. Its Feb. 1 entry has drawn 111 comments, both in support of and against Yahoo selling to Microsoft.

"I would love to see Microsoft and Yahoo come together! Google is too powerful!" wrote one commentator.

But another threatened, "If you sell out to Microsoft, I will immediately move my e-mail account elsewhere."

Last year, Jackson, the Yahoo shareholder, used Web 2.0 tools to lobby for the removal of several directors from Yahoo's board. This time, the founder of Ironfire Capital, an activist investment firm, said he hoped to find other shareholders who share his belief that Yahoo should sell the company to the highest bidder.

Along with his YouTube video, he is blogging at Breakout Performance (breakoutperformance.blogspot.com) and using YouChoose.net to track support for his cause. About 2.1 million shares - out of about 1.39 billion outstanding Yahoo shares - have been informally pledged, he said.

"I hope to attract like-minded shareholders," Jackson said. "We have more power together. ... If we remain a bunch of individual shareholders with our 50 shares, we are not going to be wooed. We'd like to be wooed."

Just as in other marketing campaigns, using Web 2.0 presents challenges. Negative or angry opinions can't be stifled, viral messages can take on a life of their own and while Yahoo and Microsoft may be able to influence the discussions, they can't manage them.

Both Yahoo and Microsoft have limited their public statements. Spokespeople for the two companies declined to discuss how they could use the latest Internet tools to influence public opinion on the deal.

But if a deal nears, or if it becomes a hostile takeover, they could kick off a more aggressive campaign. In the past, corporations have pushed their messages through traditional channels, such as leaking information to the media or running advertisements. This time, they could add social media to the mix, said Judy Radlinsky, vice president of the Hoffman Agency and the director of corporate public relations at Hewlett-Packard during the HP-Compaq contest.

It's not the first time corporations locked in a takeover fight have taken it to the Web. In 1995, both IBM and Lotus used the Internet, publishing comments on their Web sites. Fast-forward more than 10 years and the tools have become much more powerful.

"It's a brave new world," said Tom Taulli, founder of DealPro-files.com and author of "The Complete M&A Handbook." "You want to be everywhere and get your message out."

Online resources
Eric Jackson's YouTube video: youtube.com/watch?v=5zIUIH8vQQ8


YouTube videos on the proposed merger: links.sfgate.com/ZCLC


Yahoo blog: ycorpblog.com


Google blog: googleblog.blogspot.com


Microsoft blog: microsoft.com/communities/blogs


Breakout Performance: breakoutperformance.blogspot.com


E-mail Ellen Lee at elee@sfchronicle.com.

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Fortune: Yahoo shareholders speak out

February 12, 2008, 4:05 pm
By Michal Lev-Ram

Now that Yahoo has officially spurned Microsoft’s $44.6 billion buyout bid, Yahoo shareholders are coming out of the woodwork. Judging by what the most vocal ones have said so far, it’s clear they believe that selling — albeit at a higher price — is the way to go.

On Tuesday, Legg Mason fund manager Bill Miller, representing Yahoo’s second-largest stockholder with 80 million shares, wrote in letter to his investors that he expects Microsoft (MSFT) to “do what it takes” to buy Yahoo (YHOO) and that the Sunnyvale, Calif.-based company is “in a tough spot if it wishes to remain independent.”

“Yahoo’s Board has pledged to give the offer careful consideration and to do what they believe will deliver the most long-term value to Yahoo owners,” wrote Miller. “That is the right message, and we are waiting to hear their views as they develop. That said, we think it will be hard for Yahoo to come up with alternatives that deliver more value than Microsoft will ultimately be willing to pay.”

Eric Jackson, president of an activist investment firm called Ironfire Capital and a Yahoo shareholder, wasn’t quite as gentle.

“We believe the Yahoo board does not have the moral authority to represent our views as shareholders in discussions with Microsoft or any other company who wants to buy Yahoo,” Jackson wrote on his blog in an appeal to other Yahoo shareholders.

Jackson, who last year campaigned to oust former Yahoo chief executive Terry Semel, started petitioning other shareholders last Sunday. Investors can make an informal “pledge” to add the Yahoo shares that they own to Jackson’s “Yahoo Plan B Group.” So far, the Naples, Fla.-based investor says he’s persuaded 130 shareholders to sign up. Combined, they have about 2.2 million shares — fewer than 1% of Yahoo’s total outstanding shares.

“This shareholder group is concerned that Yahoo’s management and board wants to remain independent and wants to fight Microsoft,” Jackson told Fortune. “Rather than sit back and watch this board supposedly acting on behalf of our interest, we want to make it clear that we want a deal – whether it’s with Microsoft or someone else.”

Yahoo’s largest shareholder, Capital Research, has yet to state its opinion publicly, though it was reported Microsoft CEO Steve Ballmer met with its fund managers last week.

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New York Times: Birthing of a more aggressive Microsoft

By ANDREW ROSS SORKIN

The New York Times
Monday, February 11, 2008 - Page updated at 12:00 AM

When Yahoo sends its letter today rejecting Microsoft's $44.6 billion, it will end up in the inbox of a largely unknown executive on Microsoft's sprawling campus: Chris Liddell.

The former banker from New Zealand is the behind-the-scenes architect of Microsoft's hostile takeover, the company's first unsolicited bid and perhaps the most audacious attempt by a technology company to wrestle control of a competitor.

With Yahoo's board rejecting Microsoft's advances, it will fall to Liddell, an outsider to the software industry who joined Microsoft as chief financial officer two years ago, to plot the company's next steps in this bitter battle — and in the process, reshape Microsoft's not-invented-here culture toward making aggressive acquisitions.

"You have to be disciplined and ruthless," Liddell said by telephone last week, before Yahoo's board decided to rebuff the offer. "We should see acquisitions as a way of growth. We should not be embarrassed at all."

Microsoft has made acquisitions over the years, but mainly smaller ones to jump-start a fledgling business or pick up a needed technology.

Its media player, voice-recognition, health search and business software, among others, are technologies Microsoft bought along with the companies that created them.

When it has come to making big deals, it has balked until recently. In late 2003, Microsoft talked to the big German business-software maker SAP about buying it. Had it been pursued, the deal would have cost Microsoft more than $50 billion.

The talks, made public in a court case in 2004, were abandoned, Microsoft said, because of the "complexity of the potential transaction," especially the management headaches of trying to put the two big software companies together.

Liddell, who calls himself Microsoft's "gatekeeper of funding," spent this weekend devising ways to raise the stakes in the fight for Yahoo now that the company's original proposal has been rejected.

He held a series of protracted conference calls with his cadre of Wall Street advisers.

More an accountant than a technologist, Liddell, who joined Microsoft after serving as chief financial officer at International Paper, has no compunction about ruffling any digital feathers.

Among his alternatives is a series of bare-knuckle Wall Street tactics: First, Microsoft plans to crisscross the nation to meet with Yahoo's largest shareholders in an election-style campaign, hoping those investors can put pressure on Yahoo's board, people briefed on the company's plans said.

Microsoft may have an easier time than it could have had two weeks ago. Since then, millions of Yahoo's shares have traded hands to short-term-oriented hedge funds that typically favor a quick sale, as opposed to value investors who hold shares for the long term.

Microsoft could also decide to make an offer directly to shareholders, called a tender offer, which would put more pressure on Yahoo's board to negotiate. At the same time, Microsoft could also set a deadline for its bid, known as an "exploding offer."

USA Today reported Sunday that Ironfire Capital, an activist investment firm that last year helped organize shareholders to oust former Yahoo CEO Terry Semel, will pressure Yahoo to accept Microsoft's offer.

Ironfire President Eric Jackson said he has organized 100 dissident shareholders who together own more than 2 million shares and have agreed to vote as a bloc to support the offer.

Microsoft's advisers in the takeover attempt are Morgan Stanley and the Blackstone Group. Its lawyers are Simpson Thacher & Bartlett and Cadwalader Wickersham & Taft.

They are facing Yahoo's team of bankers at Goldman Sachs, Lehman Brothers and Moelis & Co., and its lawyers at Skadden, Arps, Slate, Meagher & Flom.

Microsoft may simply raise its offer to clinch a deal. Analysts have suggested the company could afford to pay as much as $35 a share for Yahoo, up from its current offer of $31.

But Liddell, speaking generally about negotiations, seemed to suggest he was willing to play hardball.

"You have to be willing to walk away," said Liddell, who plays rugby regularly and has completed several triathlons.

For Liddell, who sends e-mail messages to colleagues at all hours and is a PowerPoint whiz, the prospect of joining Microsoft as an outsider and trying to transform it into a financially oriented acquisition machine was daunting.

"I knew there had been a history of people coming in here and it not working," he said.

Liddell was one of several high-profile outside hires at Microsoft in recent years, including Ray Ozzie, the creator of Lotus Notes, as the company's chief software architect; and Kevin Turner, a former Wal-Mart executive, as chief operating officer.

Liddell, who has a master's degree in philosophy from Oxford, found that with Microsoft Chairman Bill Gates and CEO Steve Ballmer, "If you do a good job, you fit in. They don't suffer people very well who don't come prepared."

He has a background as an investment banker at Credit Suisse First Boston in Auckland, New Zealand.

Since Liddell joined the company, Microsoft has made 50 acquisitions.

He has pushed the company to use its cash — it has spent $54 billion on stock buybacks and dividends since Liddell's arrival.

And it has even taken on, dare it be said aloud at Microsoft, debt for the first time in the company's history.

If the company's bid for Yahoo is successful, Microsoft will be doing both.

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Bloomberg: Yahoo Defense May Fail to Repel Hostile Microsoft Bid

By Amy Thomson

Feb. 12 (Bloomberg) -- Yahoo! Inc., the Internet company that rejected a $44.6 billion bid from Microsoft Corp., may find that a so-called poison pill in its bylaws isn't enough to defend against a hostile takeover.

The provision is designed to increase the number of shares outstanding in the event of an unwanted offer, making a takeover costly. Microsoft, the biggest software maker, would be able to get rid of the clause by replacing Yahoo's 10 directors, who are all up for re-election at the next annual meeting. The last meeting was in June.

Microsoft has until March 14 to nominate its own board members and clear the way to unite the second- and third-biggest Internet search companies. Yahoo shares slid 50 percent in the two years before the Feb. 1 offer, and some shareholders and analysts say the company should sell.

``Ultimately, it's almost impossible to resist a strong acquirer with a strong offer,'' said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware in Newark, Delaware.

The $31-a-share bid from Redmond, Washington-based Microsoft is 62 percent more than Yahoo's closing price the day before the offer. Yesterday, Yahoo's board said the bid ``substantially undervalues'' the Sunnyvale, California-based company.

Microsoft said in a statement that it's ``moving forward'' with the proposal and may take the bid straight to shareholders. Yahoo declined to comment beyond its statement yesterday, said spokeswoman Tracy Schmaler.

Odds on Deal

There's a 55 percent chance Microsoft will complete a takeover at a higher price, Mark Mahaney, a San Francisco-based Citigroup analyst, said today in a report. Susquehanna International Group LLP's Marianne Wolk in New York pegs the probability of a Microsoft purchase at 75 percent.

Microsoft would need Yahoo shareholders to support its slate in a vote at the annual meeting. Investors probably would back Microsoft's nominees if Yahoo attempted to trigger the poison pill, said Nancy Havens, president of hedge fund Havens Advisors. Her New York firm owns Yahoo shares and sells Microsoft short.

``It is unfortunate that Yahoo has not embraced our full and fair proposal to combine our companies,'' Microsoft said yesterday, without outlining a plan or timetable. ``We are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.''

Microsoft may raise the offer to accelerate the takeover, said Heather Bellini, a UBS AG analyst in New York.

Microsoft rose 13 cents to $28.34 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has dropped 13 percent since the company announced the offer. Yahoo fell 30 cents to $29.57.

Competition

Microsoft is pursuing Yahoo to compete with Google Inc., the leader in Internet search. Google has grown faster than Yahoo or Microsoft in every quarter since the start of 2005. Yahoo has posted eight straight quarters of profit declines, with the latest leading to an 8.5 percent drop in the stock on Jan. 30.

``It's a company that's floundering,'' T. Rowe Price fund manager Larry Puglia, who oversees $12.8 billion in the group's Blue Chip Growth Fund, said in a Feb. 8 interview. His fund, which owns Microsoft and Yahoo, favors a deal at a higher price.

Eric Jackson, president of investment firm Ironfire Capital in Naples, Florida, is organizing shareholders to support the Microsoft bid or any higher offer. There are 2.1 million shares in support of the move, though the count is based on an ``informal pledge'' by investors, Jackson said on his blog.

The Wayne County Employees' Retirement System of Michigan, owner of about 13,600 Yahoo shares, yesterday sued Yahoo over the bid rejection. In a complaint filed in Delaware Chancery Court, the group asked a judge to force Yahoo to consider takeover offers.

Flooded Market

Yahoo's poison-pill provision, adopted in March 2001, lets investors buy new shares at half price if a party acquires more than 15 percent of the stock without board approval. That would flood the market with shares, increasing the price Microsoft would have to pay to get them all.

The poison pill would give shareholders the right to buy preferred shares for $250 each. Those units could then be exchanged for $500 worth of common stock. The company also has the authority to issue up to 10 million shares of preferred stock at any price, according to the provision.

Yahoo shares plummeted 94 percent from a high of $118.75 on Jan. 3, 2000, to a low of $6.78, the day after the company announced the clause. Some analysts at the time said Yahoo might attract a bid after an economic slowdown hurt Internet advertising sales and pushed the stock price down.

The company probably will decide against activating the clause to avoid angering shareholders, said hedge fund president Havens.

``Their whole goal right now is to get an increased price,'' she said. ``They're between a rock and a hard place.''

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USA Today: Showdown Today Over Yahoo Vote on Microsoft's Bid

By Jefferson Graham and Jon Swartz, USA TODAY
Feb. 11, 2008

Ironfire Capital, an activist investment firm which last year helped organize shareholders to oust former Yahoo CEO Terry Semel, on Sunday said it would pressure Yahoo yhoo to accept Microsoft's msft unsolicited $44 billion takeover offer.

Yahoo's board is expected to reject that offer Monday, according to reports by the Associated Press and The Wall Street Journal quoting an unnamed source. USA TODAY could not confirm those reports.

Ironfire President Eric Jackson has organized a group of 100 dissident shareholders who collectively own more than 2 million shares and have agreed to vote as a bloc to support the buyout offer.

Jackson is reaching out to other Yahoo shareholders (http://breakoutperformance.blogspot.com), as well. "We'll tender our shares to the highest bidder," he says. "We don't trust Yahoo's board to negotiate on our behalf."

Jackson says it would be "ludicrous" to turn down Microsoft and says Yahoo's outlook has only worsened under CEO Jerry Yang, who replaced Semel in 2007.

"He runs it as if it's a private company, taking slow, incremental steps," he says. "He doesn't realize his approach is what lost the confidence of Wall Street and put Yahoo in play." Yahoo declined to comment.

Greg Sterling, an analyst with Sterling Market Intelligence, says a Yahoo rejection would be an attempt to get Microsoft to sweeten its offer, a prospect he calls "highly unlikely."

Microsoft has proposed paying $31 a share, a 62.7% premium over Yahoo's $19.05 closing price when Microsoft made the offer on Feb. 1. Yahoo stock closed Friday at $29.20.

"There is no credible alternative to this offer," says Sterling. "I don't see Yahoo retaining its independence unless someone else comes forward, and that hasn't happened."

The only way to appease shareholders, says Trip Chowdhry, an analyst at Global Equities Research, is for Yahoo to broker a deal with Google goog— perhaps letting Google handle searches on Yahoo's site in exchange for a split of the advertising revenue.


Investors have clamored for such an option as Google's share of search continues to rise, while Yahoo's slides.

"Yahoo is in limbo," says Chowdhry. "If they say no, shareholders will say, 'What are you doing, turning down a great offer?' "

A rejection would leave Microsoft with three options, says Rob Enderle, principal analyst at the Enderle Group in Silicon Valley. It could come back with a sweetened bid of $33 or $34 a share; it could drop its bid; or it could take hostile action and attempt to replace Yahoo's directors.

"By asking for an inflated price, it forces Microsoft to attempt a hostile takeover, putting at risk the most important asset: the people," says Roger Kay, president of market researcher Endpoint Technologies Associates.

Microsoft declined to comment.

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WSJ.com: Weekend Roundup

February 11, 2008, 7:18 am
Weekend Roundup

Yahoo: So who is going to blink first? Yahoo’s board now plans to reject Microsoft’s $44.6 billion offer. That leaves Microsoft, according to this WSJ article, with a difficult choice: offer a lot more money or risk a truly hostile takeover. People close to Microsoft say the software giant is reluctant to pursue a proxy fight, fearing such action would increase the likelihood of key Yahoo employees leaving the Internet giant. More likely, Microsoft will try and recruit some of Yahoo’s big shareholders to put pressure on the company’s board.

In fact, Microsoft seems to already have some shareholders on its side. A group of 100 current and former Yahoo employees that own 2.1 million shares are willing to negotiate separately with Microsoft or any other bidder. (See this Reuters article and this blog post from Eric Jackson, leader of the dissident group of shareholders.)

Microsoft’s bid for Yahoo looked like it would make the task of unloading AOL tougher for new Time Warner CEO Jeffrey Bewkes. Not so fast. The Times (of London), citing no sources, is reporting that Microsoft’s bid reignited talks of Yahoo buying AOL.

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Bloomberg: Microsoft `Moving Forward' With Yahoo Takeover Offer

By Dina Bass

Feb. 11 (Bloomberg) -- Microsoft Corp., spurned today in its offer to buy Yahoo! Inc. for $44.6 billion, is ``moving forward'' with the proposal and may take the bid straight to shareholders.

``It is unfortunate that Yahoo has not embraced our full and fair proposal to combine our companies,'' Microsoft said in a statement today, without giving a specific plan. ``We are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.''

Microsoft, wary of alienating its own shareholders by raising the price too high, may initiate a hostile takeover and court Yahoo investors that are willing to press the company's board, said Pacific Crest Securities' Brendan Barnicle. Microsoft Chief Executive Officer Steve Ballmer may be signaling confidence that Yahoo has no other way to boost its stock, he said.

``It doesn't seem like Yahoo's other options are good,'' said Barnicle, a Portland, Oregon-based analyst. ``If there was a white knight, we'd have seen it by now.''

Some Microsoft shareholders wanted the company to hold firm on the offer, which is 62 percent more than Yahoo's stock price the day before the bid became public.

``If Yahoo is intractable and won't listen at this price, Microsoft has to be intractable too,'' said Ken Allen, an analyst at Baltimore-based T. Rowe Price Associates Inc., the fifth- largest institutional holder of Microsoft shares.

Yahoo rose 67 cents to $29.87 at 4 p.m. New York time in Nasdaq Stock Market trading. Microsoft shares fell 35 cents to $28.21.

Hostile Pursuit?

Microsoft reiterated that it might rely on hostile measures, saying it ``reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal.'' Company spokesman Frank Shaw declined to comment on specific tactics.

Unless Yahoo CEO Jerry Yang has a plan to boost his company's shares above the offer price, Yahoo investors will side with Ballmer, said Michael Gartenberg at JupiterResearch.

``He essentially said, `We can do this the easy way or the hard way,''' said Gartenberg, a New York-based analyst. ``If Yahoo has no credible plan, it's hard to see how shareholders are going to say to Jerry, `It's your company and we'd love to find a way to keep it as a stand-alone entity.' I don't think that's a real priority for Yahoo shareholders.''

Microsoft sent its offer to the Yahoo board less than a day before making the bid public Feb. 1. While the offer was pegged at $31 a share, the value of the half-cash, half-stock deal has fallen to about $28.91, based on Microsoft's stock close today.

New Board?

Microsoft has never before made an unsolicited offer, let alone attempted a hostile takeover. A person familiar with the matter said last week that the Redmond, Washington-based software maker may seek to oust Yahoo directors if they reject its bid.

By combining with Microsoft, Sunnyvale, California-based Yahoo would become a closer No. 2 behind Google Inc. in Internet advertising revenue and Web search queries.

In failing to raise the price now, Microsoft is betting that Yahoo shares will sink, making Ballmer's argument for him, according Pacific Crest's Barnicle.

``If it appears to shareholders that Microsoft might very well go away, the stock may do a bit of a swan dive here, and that enables Microsoft to come back in at the same price or a higher price,'' said Frederick Lane, the former co-head of mergers and acquisitions at Donaldson, Lufkin & Jenrette. He now runs Lane Berry & Co., a Boston investment banking boutique.

Strange Allies

Yahoo's shareholders, on the other hand, may provide a useful ally for Ballmer. The company's stock had lost half its value in the two years before the offer.

Eric Jackson, president of the investment firm Ironfire Capital in Naples, Florida, is organizing shareholders to support the Microsoft bid or any higher offer, according to a posting on his blog yesterday. He said there are 2.1 million shares in support of the move, though the count is based on an ``informal pledge'' by investors.

Eight months into Yang's tenure as CEO, he's failed to offer a plan to catch Google or reverse the stock declines, Gartenberg said. With no other bidders for Yahoo emerging so far, Ballmer's proposal may be the best choice available to Yahoo investors.

``The letter Ballmer wrote basically said, `Dear shareholders of Yahoo, would you like some of your money back? I'm prepared to give you that. Love, Steve,''' Gartenberg said. ``It's hard to see how this deal doesn't get done.''

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International Herald Tribune: Group offers to sell Yahoo shares to Microsoft

By Anupreeta Das and Eric Auchard Reuters

Published: February 11, 2008

SAN FRANCISCO: A dissident group of Yahoo shareholders has started a campaign to sell its shares as a block, breaking ranks with Yahoo as it faces an unsolicited takeover bid from Microsoft.

Eric Jackson, leader of "Yahoo Plan B," an outspoken group of 100 current and former Yahoo employees who own 2.1 million shares, less than one-fifth of 1 percent of the outstanding shares, said Sunday that his group was prepared to negotiate separately with Microsoft or any other bidder.

"We have no desire to see Yahoo continue independently with the current board and management team in place," Jackson said on his blog site, Breakout Performance. "We believe that is a recipe for a $17 stock price. Therefore, we will band together as a group and agree to sell our Yahoo shares to the highest bidder."

When Microsoft made its unsolicited bid for Yahoo on Jan. 31, it valued the offer at $31 a share, or $44.6 billion. The value has slid along with Microsoft shares to a current level of $41.8 billion, or $29 a share.

Yahoo's stock, which traded at more than $40 two years ago, was hurt by competitive pressures from Google, product missteps, management defections and restructuring moves. It touched a 52-week low of $18.58 a day before Microsoft made its offer. Yahoo shares traded last week within a few cents of $29.

Yahoo's board is expected to reject Microsoft's offer as too low, a source familiar with the situation said Saturday. The New York Post reported last week that Capital Research and Management, which owns 11 percent of Yahoo and 6 percent of Microsoft, had met with Steve Ballmer, chief executive of Microsoft, to see whether he would raise the offer if Yahoo rebuffed it.

Jackson's group is the first among Yahoo shareholders to speak out publicly against the expected rejection of Microsoft's offer, and he called on other investors to join the block.

Jackson, who runs Ironfire Capital, an investment firm in Naples, Florida, figured prominently at Yahoo's annual meeting last June, where he led a move to challenge the direction of the company. He accused Terry Semel, then chairman and chief executive, of mismanaging the company and failing to do more to revive its share price.

"I am surprised that you didn't apologize for the last three years of performance," Jackson told Semel in front of shareholders at the meeting.

Jackson's campaign resulted in a hefty minority vote against the re-election of Semel, who resigned a week afterward as chief executive, and Roy Bostock, who was named Yahoo chairman two weeks ago when Semel stepped down from that post.

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San Jose MercNews: Report: Yahoo may buy AOL

WEB ICON TRIES TO STOP COLLAPSE OF ITS STOCK AS IT SPURNS MICROSOFT
By Elise Ackerman
Mercury News
Article Launched: 02/11/2008 01:30:22 AM PST

It was Silicon Valley's equivalent of a Sunday night cliffhanger.

As Yahoo Chief Executive Jerry Yang prepared to send a letter to Microsoft Chief Executive Steve Ballmer rejecting Microsoft's $44.6 billion bid, the possible future of the Internet icon suddenly took an unexpected twist.

Word began leaking that Yahoo was considering buying AOL in an effort to put together a credible alternative to Microsoft's bid for shareholders, who will see the value of their investment plummet without one.

The report in the Times of London was not confirmed, but it quickly caught the eye of analysts, reporters, venture capitalists and technology industry employees who have gotten hooked on the drama of Yahoo's uncertain future.

Once the Internet's brightest stars, the prospects of Yahoo and AOL are rapidly dimming compared with Google. While Google's advertising revenue has increased by more than 50 percent each quarter during the past year, Yahoo and AOL have been lucky to grow in the teens.

The two portals are still very popular, however. According to comScore, a measurement firm, Yahoo had 137 million unique visitors in December and AOL had 120 million, compared with 133 million for Google.

Jeffrey Lindsay, an analyst with Sanford Bernstein, said a combination of the two companies, combined with other moves such as outsourcing Yahoo's search advertising to Google and significant layoffs, could give Yang an alternative to present to shareholders.

In a pantomime played out in the press in advance of the official delivery of Yang's letter this morning, anonymous sources connected to the Sunnyvale company have let it be known that Yang will not consider a bid of less than $40 a share - $9 more than the $31 a share Microsoft offered on Feb. 1.

The Redmond, Wash.-based firm has not responded, letting the 62 percent premium it added to Yahoo's closing value on Jan. 31 speak for itself. But the tactics Microsoft has chosen, including going public with its bid, suggest it will play hardball before raising its price.

In an interview with the New York Times last week on the general topic of acquisitions, Microsoft's Chief Financial Officer Chris Liddell said, "You have to be willing to walk away."

More than a year ago, Ballmer negotiated in private with former Yahoo Chief Executive Terry Semel in an unsuccessful attempt to acquire Yahoo. This time, Ballmer publicly announced Microsoft's offer, blindsiding Yang and Yahoo's board of directors and setting the stage for a showdown with Yahoo's shareholders.

"It tied the hands of what Jerry Yang could do," said Jonathan Tower, a managing director at Citron Capital, a global private equity and venture capital firm, and author of the blog "Adventure Capitalist."

Once shareholders learned that a price had been set, they immediately demanded it, driving Yahoo's value from $19.18 to $29.20.

On Sunday, Eric Jackson, who rallied a shareholder rebellion that led to Semel's ouster last June, launched a new campaign in favor of negotiating with Microsoft. "This board doesn't have the moral authority to represent our interests," he said.

Jackson, president of Ironfire Capital, an activist investment firm in Naples, Fla., said he was relieved when Yang, Yahoo's co-founder, took over from Semel in June, but he has grown deeply disillusioned with Yang's ability to take the necessary steps to re-invigorate the company.

While some see Yang's expected rejection of Microsoft's bid as a negotiating ploy, Jackson said he is worried that Yang is serious. "My fear and a lot of other shareholders' fear is that Yahoo is seriously considering going it alone."

Jackson is not placated by the prospect of a tie-up with AOL. Microsoft's offer "is a no-brainer," he said, and rejecting it will cost shareholders.

"I think the stock is basically going to crash," he said.

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Austin American-Statesman: Yahoo rejects Microsoft - but is it just being coy?

Many observers expect Microsoft to up the bid

By Bob Keefe

WEST COAST BUREAU

Tuesday, February 12, 2008
Now that Yahoo Inc. has formally rejected Microsoft Corp.'s $44.6 billion buyout bid, the question swirling around the biggest tech industry merger ever proposed is this:

Just how much is Microsoft willing to pay?


Even though Yahoo executives turned down Microsoft's offer of $31 a share, saying it "substantially undervalues" the company, they didn't reject the idea of a merger, and Microsoft gave no indication it was going away.

"Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties," Microsoft said in a statement Monday after receiving Yahoo's rejection letter.

Microsoft said it reserves the right to "pursue all necessary steps" in its buyout bid. Though it didn't give specifics, that could mean continuing to pressure big shareholders who could influence Yahoo's board of directors, taking a tender offer directly to shareholders or making a better offer.

"The Yahoo response does not change our belief in the strategic and financial merits of our proposal," Microsoft said.

In its letter rejecting the Jan. 31 offer, Yahoo clearly left the door open for negotiations, something it didn't do a year ago when Microsoft made a similar unsolicited bid.

Yahoo's board said it is "continually evaluating all of its strategic options" and remains "committed to pursuing initiatives that maximize value for all stockholders."

Observers say that will prompt Microsoft to raise its bid in the coming days.

"Microsoft's bid was uninvited ... and in standard negotiating procedures you never take the first offer," said Counse Broders, a senior research director for Current Analysis Inc., a technology research firm.

Jordan Rohan, an analyst with RBC Capital Markets Corp., said in a research note that he expects Microsoft to come up with an offer of $31 to $40 a share. If so, Rohan wrote, it might be impossible for Yahoo's board to turn the company down without facing lawsuits by shareholders.

"We do not believe that Yahoo's board will be able to turn down a mid-$30s bid without another offer in hand," Rohan wrote. "Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders, and (Microsoft's) offer allows them to save some face."

According to Rohan and other Wall Street analysts, Microsoft executives held several meetings last week with Yahoo's largest shareholders, even while Yahoo executives were trying to drum up a competing buyout bid from unnamed "white knights."

When Yahoo couldn't get a better bid, it "did the next most logical thing, which is to position itself to pry a higher price from (Microsoft)," Rohan wrote.

Adding to the pressure on Yahoo executives, a group of investors led by a shareholder activist in Florida announced it is more than willing to sell its shares to Microsoft or anybody else who comes up with a better bid.

"We are ready to tender those shares to whoever steps forward and makes the best offer," said Eric Jackson, who runs the Naples, Fla., firm Ironfire Capital. Jackson said he thinks that if Yahoo doesn't take a buyout bid from Microsoft or some other suitor, Yahoo's shares will sink back to its recent price of $17 a share — or lower.

Jackson says he owns only 96 Yahoo shares but claims to have the backing of holders of some 2.2 million shares. That's still just a fraction of the 1.39 billion outstanding shares of Yahoo stock, but Jackson has already proven he can influence Yahoo's board. Last year, he led a campaign that helped push Yahoo chief executive Terry Semel out of the company's top job.

"One thing we found last year was that ... it's not so much the quantity of the shares but the quality of the argument," Jackson said in a telephone interview.

"We're hoping that by stepping up and stating our opinion others will join on ... and (Yahoo's) board will listen," he said.

Other companies mentioned as potential suitors for Yahoo include Time Warner Inc.'s AOL unit, Walt Disney Co., AT&T and media behemoth News Corp.

Most of those companies have plenty to deal with already, however, including digesting their own mega-mergers or internal expansions or tackling their own problems.

Current Analysis' Broders said it would be tough for other suitors to match or beat Microsoft's bid. With more than $21 billion in cash, Microsoft has some of the deepest pockets of any publicly traded company.

"I don't know if anybody else has the resources to make such a move," he said. "It's a hell of a lot of money, and you've got the challenges of the financial markets these days."

On Monday, Yahoo's stock closed at $29.87, up 67 cents. Microsoft fell 35 cents a share to $28.21.

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CNET: What's Microsoft's next move in fight for Yahoo?

By Dawn Kawamoto
Staff Writer, CNET News.com

Published: February 11, 2008, 3:38 PM PST

With Yahoo issuing a resounding "no" to its current buyout bid, Microsoft has one of two levers it can pull, said some analysts, investors, and proxy solicitors.

The software giant can up the ante on its initial buyout bid of $44.6 billion and hope Yahoo will bite, or try the one-two punch approach of a tender offer followed by a proxy fight for control of Yahoo's board of directors.

While analysts believe the company has a few other moves up its sleeve before it submits its best and final offer, Microsoft appears to be posturing for a fight. Some have said the company is likely willing to up its bid to at least $35 a share.

"The Yahoo response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal," Microsoft said in a statement Monday in response to Yahoo's rejection of its offer.

Without a competing suitor on the horizon, Yahoo has little leverage in pushing Microsoft to up its bid, said Ken Allen, a software investment analyst for T. Rowe Price, a major institutional investor in Yahoo.

"Microsoft offered a large premium and no other bidders have emerged, so my guess is that Microsoft will keep the bid where it is," Allen said. "Microsoft probably has better leverage taking their bid to Yahoo's shareholders, since Yahoo's board rejected the offer. It's less clear what Yahoo shareholders think of it."

Yahoo shareholders could try to intervene, similar to a situation that BEA Systems recently faced. Late last year, Oracle made an unsolicited bid for BEA, a middleware software company. But after rejecting the offer, BEA's largest investor, Carl Icahn, intervened and directly negotiated a deal with Oracle, which in the end was higher than Oracle's initial offer but less than BEA's desired striking point.

Absent of a higher bid, Microsoft is likely to deliver a one-two punch, some proxy solicitors say. Yahoo's entire 10-member board is up for re-election at the next annual shareholders meeting. The window for shareholders to nominate their own candidates opens Wednesday and runs through March 14, according to Yahoo's Securities and Exchange Commission filing.

Before the punching begins, the persistent buyer will try to woo a reluctant target with a gentle approach in the early days of the window. That window is a time when shareholders can name opposition board candidates for investors to vote on at the next annual shareholders meeting.

But as the deadline for the window draws near, all niceties get set aside. In many cases, the buyer turns hostile and initiates a one-two punch.

First, a tender offer is floated out, even if the reluctant buyer has a so-called poison pill, said one seasoned proxy solicitor, who requested anonymity.

A tender offer gives investors an assurance that a bona fide offer is on the table, even if the buyer will not take receipt of the shares, as long as the poison pill is in place, the proxy solicitor said.

So why bother?

"It's something that the (opposition board) can say they will offer, rather than say, elect my guys and they may do this," the proxy solicitor said.

Mom-and-pop investors are listening. Individual investor Eric Jackson, who holds 96 Yahoo shares, runs a Yahoo investor Web site, which is being used as a place for retail investors to log in the number of shares that they own and act as a united voice on shareholder matters.

"We have about 100 shareholders who own about 2.1 million shares," Jackson said. "We're standing up and saying we're willing to tender our shares to the highest bidder."

After the tender offer comes the proxy fight.

With the tender offer out there, the hostile buyer will then typically introduce its opposition candidates to replace the company's board seats that are up for election.

Should the opposition candidates win and they represent a majority on the board, the board can then change the bylaws and remove the poison pill.

"If they haven't done it already, they're in the process of assembling an appropriate slate (of opposition board members)," said Bruce Goldfarb, a veteran proxy solicitor. "It's fair to assume they will run for board seats, and it won't take them long to fill the slate. We're talking Microsoft here. They have resources and access to countless high-quality candidates to be a director."

Yahoo's directors are familiar with investors' wrath. Last year, Yahoo directors who served on the compensation committee had roughly 30 percent of votes withheld for their re-election--a high percentage given most directors face a 5 percent to 15 percent withhold vote under normal circumstances, proxy solicitors say.

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LA Times: Despite rebuff, Microsoft to press on with Yahoo bid

The takeover target says the $44.6-billion unsolicited offer is too low.

By Jessica Guynn, Los Angeles Times Staff Writer

3:07 PM PST, February 11, 2008

SAN FRANCISCO -- After being rebuffed by Yahoo Inc. today, Microsoft Corp. fired back by saying it planned to move quickly and by whatever means necessary to clinch the deal to buy the Internet company.

It did not elaborate on what steps it planned to take, but called its $44.6-billion offer "full and fair." Analysts have said Microsoft could sweeten its offer, nominate it own slate of directors to Yahoo's board or tender the offer directly to shareholders.


"It is unfortunate that Yahoo has not embraced our full and fair proposal to combine our companies," Microsoft said in a statement. "Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties."

Microsoft said investors, consumers and advertisers would benefit from combining the two companies, which would create a more formidable No. 2 competitor to Google Inc. in Internet search and online advertising.

The deal would be the largest in Microsoft's 33-year history.

Shares of Yahoo rose 67 cents, or 2.3%, to $29.87, while Microsoft dropped 35 cents, or 1.2%, to $28.21.

Sunnyvale, Calif.-based Yahoo formally rejected Microsoft's takeover bid before the stock markets opened, saying it "substantially undervalues" the struggling Internet pioneer.

Yahoo said that its board had "unanimously concluded that the proposal is not in the best interests of Yahoo and our stockholders." It said the unsolicited bid, which Microsoft made Jan. 31, failed to take into account Yahoo's strong brand, global Web audience, big investments in advertising technology and growth potential.

"There is a clear path to a higher offer," said Ken Marlin, managing partner of Marlin & Associates, a technology-focused investment bank. "The board knows it and is already engaged in the elaborate kabuki dance to get there. They will."

The decision was reached by Yahoo's board Friday and reported by news organizations, including The Times, over the weekend. The statement did not explain how Yahoo planned to deliver the payout that shareholders would have received by selling to Microsoft.

No other bidders have emerged for Yahoo.

"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," the statement said.

Analysts say Yahoo's board is maneuvering to wrest a higher bid from Microsoft. Microsoft's half-cash, half-stock offer of $31 a share on Feb. 1 at the time represented a 62% premium, but the decline in Microsoft's shares had lowered the stock portion to around $29.

Yahoo's stock has plunged more than 40% in the three months before Microsoft's bid, dragged down by unfulfilled promises of a turnaround.

Redmond, Wash.-based Microsoft could sweeten its offer and pay anywhere from $35 to $40 a share for Yahoo, analysts say. Another option: Microsoft could take its offer directly to shareholders.

Microsoft would like to avoid a hostile takeover to avoid alienating Yahoo employees and to increase the odds of clearing regulatory hurdles, analysts say. But in Microsoft's offer letter, Chief Executive Steve Ballmer implied that the company would be willing to turn the bid hostile.

"Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal," Ballmer wrote.

RBC Capital Markets Internet analyst Jordan Rohan said today that the rejection was not a surprise and signaled that Yahoo was merely making a counteroffer in a highly choreographed negotiation to extract the best price for shareholders.

He noted that a year ago Yahoo spurned Microsoft's advances without countering. He said Yahoo would be unable to turn down an offer from Microsoft in the mid-$30s without another offer in hand.

"Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders and [Microsoft's] offer allows them to save some face," he wrote in a report to clients.

The rejection could set the stage for a drawn-out battle with Yahoo pushing for $40 a share. At least one group of shareholders will be pushing for a quicker resolution.

"I'm disappointed that it's a flat rejection without an explanation for why Yahoo is so undervalued by the street or what their plan as a board is to better monetize these overlooked assets they have," said Eric Jackson, who heads a dissident group of Yahoo shareholders campaigning to sell their shares as a block. "I hope this is just bravado negotiation, not a serious consideration to go it alone. That wouldn't serve shareholders."

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Yahoo! Shareholders In Favor of Selling

Yahoo! is a great company and brand. Last year, when our grassroots shareholder group was formed, we advocated rapid action to turn around the company so that it could stay strong and independent. Although some changes have taken place, including installing Jerry Yang as CEO last June, there have not been enough. As Wall Street lost confidence in the company based on the results and a lack of strategic direction, the stock price drooped below $20. Microsoft has now made a $31 offer for the company. Yahoo!'s board has deliberated and rejected the offer as "massively" under-valuing the company. It thinks the company is better off going it alone versus taking the offer -- even if there is a possibility the stock price craters to $17 or less.

We believe that the Yahoo! board does not have the moral authority to represent our views as shareholders in discussions with Microsoft or any other company who wants to buy Yahoo! At last June's annual meeting, all the Yahoo! directors received a historically significant number of "against" votes from shareholders. The current Yahoo! Chairman received 36% of the votes cast against his re-election to the board. Yet, with the exception of Terry Semel, Yahoo!'s directors are all still serving on the board.

We believe we can do a better job representing our own interests as Yahoo! shareholders, rather than putting our faith in the current Yahoo! board. We have no desire to see Yahoo! continue independently with the current board and management team in place. We believe that is a recipe for a $17 stock price.

Therefore, we will band together as a group and agree to sell our Yahoo! shares to the highest bidder. There is currently an offer on the table from Microsoft for $29 (at Microsoft's current valuation). We view that as a floor bid. We will tender our shares to Microsoft or any other bidder (e.g., AT&T, NBC, News Corp., Comcast, etc.) who makes a better offer than this.

If we remain isolated, disenfranchised shareholders (whether we an individual owning 1 share or we are a large institutional investor owning thousands of shares), we are powerless to control how Yahoo!'s board acts in getting the best possible outcome for us. If we band together, we can control our own destiny.

If you agree, pledge below to add your Yahoo! shares that you own to this "Yahoo! Plan B" Group in order for us to negotiate the highest possible price for our Yahoo! shares. This is an informal pledge (we're not making you sign legal documents), but you should represent that you truly own the Yahoo! shares you say you do and be willing to be contacted to verify this. I or someone else from the "Yahoo! Plan B" Group will contact you later about the best possible price we are able to negotiate from a buyer.

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