Friday, February 15, 2008

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'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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