SAN FRANCISCO -- Yahoo Inc. Chief Executive Jerry Yang Monday had to tangle with some big shareholders who were displeased that he didn't reach a deal to sell his company to Microsoft Corp. at a sweetened price.
"I'm extremely disappointed in Jerry Yang," said Gordon Crawford, a portfolio manager at Capital Research Global Investors, which owns over 6% of Yahoo's shares. "I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."
At issue was Yahoo's stance in negotiations with Microsoft Saturday that the company was worth $37 per share, while Microsoft said it was prepared to offer $33. Some of Yahoo's major shareholders had by late last week signaled to Yahoo that they were open to a deal around $33 or $34 per share, according to people familiar with the matter.
"It's evident that most shareholders would have been perfectly happy with a transaction in the $34 range," said Mr. Crawford of Capital Research Global Investors, a division of Capital Research & Management Co. The parent concern in total owned over 16% of Yahoo's shares according to the latest available regulatory filings, making it Yahoo's largest shareholder.
With Microsoft's withdrawal of its offer Saturday, and a sharp slide in Yahoo shares Monday, some investors are asking why Yahoo didn't work harder to bridge the price gap with Microsoft. Any investor dissatisfaction could potentially feed into calls to unseat Yahoo's board at its next annual meeting or efforts to press Yahoo's directors to go back to Microsoft to try to strike a deal. Yahoo late Monday announced it would hold its annual shareholder meeting on July 3, setting a May 15 deadline to receive any new nominations for Yahoo directors.
A manager at another major shareholder said the firm was "comfortable with Microsoft's price," and had communicated to Yahoo last week that it would accept a deal in the approximate range of $33 or $34 per share.
A manager at a third major Yahoo shareholder said some investors were pressing Yahoo to "reopen the dialogue" with Microsoft about possible deals. "The shareholders are pretty irate," the manager said.
Yahoo's Mr. Yang and the company's chairman Monday defended Yahoo's actions. "Listening to shareholders is very important but you'll get lots of points of view," said Yahoo Chairman Roy Bostock in a joint interview with Mr. Yang Monday. "In the final analysis the independent directors of the board had to make a determination of what our position would be when we put the first price on the table," he added, saying that Yahoo's board had not named any price before Saturday.
"We said, considering all of these hard data, what we should do is say we think a fair value for the company is $37. It was not a take-it-or-leave it statement," Mr. Bostock said. He said Microsoft did not respond to that price other than to withdraw its offer.
One person familiar with the matter said Yahoo's board saw $37 as a starting point in what was expected to be a negotiation. Some board members may have been prepared to accept a lower price from Microsoft -- perhaps as low as $34 -- if Microsoft had continued negotiating, this person says.
Some of the major Yahoo shareholders were upset that Mr. Yang and cofounder David Filo were the ones who represented Yahoo in the discussions with Microsoft on Saturday in Seattle, prior to Microsoft's withdrawal of its offer. Those shareholders believe the two were biased against selling the company they co-founded in 1995.
Mr. Yang in the interview disputed the idea that Yahoo didn't want to sell to Microsoft. "There should be no question about our willingness" to sell to Microsoft, he said, speaking of himself and Mr. Filo. "We as a company and I personally have always been open to a deal with Microsoft and I hope that the last few days it was clear that we have shown we're willing to do a deal with Microsoft but that we couldn't get to an agreement on price."
As expected, Yahoo's stock took a pummeling in the stock market Monday, falling $4.20, or 14.7%, to $24.47. Analysts said the shares, which traded at $19.18 on Jan. 31 prior to Microsoft's initial $31 per share offer, were supported from falling to the same level by the possibility that Microsoft could revive its Yahoo pursuit, and that Yahoo was poised to announce a search advertising pact with Google. While a deal wasn't finalized as of Monday afternoon, Yahoo and Google were vetting a potential agreement with antitrust regulators, according to a person close to Google.
Mr. Yang said he was taking Mr. Ballmer's letter withdrawing the Microsoft offer "at face value for what it is." He acknowledged facing pressure now to deliver on Yahoo's plans for its business. "There is no celebrating here," he said. "We have a lot of work ahead of us."
By: Kevin Delaney
Wall Street Journal; May 6, 2008
