May 17, 2008

Yahoo vs. MSFT - Icahn Steps In

Just when I thought things couldn't get any more complicated - in steps Carl Icahn, to muddy the waters even further. Carl Icahn has bought 50 million Yahoo shares since Microsoft withdrew its bid, which perhaps helps to explain why Yahoo shares haven’t fallen back to pre-proposal levels since the bid got yanked. If history is any guide, we should soon hear Icahn’s views on Yahoo’s situation and the failings of its top officials in great detail.

Icahn is known to be a very tenacious and determined person. He gets in at a low and gets out at a high. (Anyone remember Icahn /Motorola or more recently, the Icahn/Time Warner debacle?). Truth be told, Yahoo should probably have sold out at $33 - but it got very personal, very fast. It appears that the Yahoo Board did not look at the deal from a Business Perspective - it was personal. Jerry Yang did NOT want to sell out to Microsoft. That much is clear - but if you want to stay independent - don't go public. When you start taking money from Wall Street, you have to deliver strong value to your shareholders. I don't think anyone out there believes that Yahoo can get to $33 on it's own - so how do you justify this decision? By retiring the monetization platform that you said would save your search business, and partnering with your strongest adversary?

Eventually, Yahoo will be sold off - either as one entity (Display + Search), or broken up into little bits and pieces. The sad thing about this is that the board members who scuttled the deal with MSFT will still walk away with millions, but the everyday shareholders who hung with Yahoo during the rough times, may not be so lucky. Icahn won’t be able to sack Yahoo’s board before the next board meeting in July’08. By then, Yahoo’s June results would’ve been released. If the Company can’t deliver strong earnings – then the original MSFT bid may start to look pretty exorbitant.

Either way, Yahoo would be wise to prepare for a bumpy ride - Icahn is the real deal. He won't stop and he won't quit - until he's made he's killing. Now, Microsoft can simply play the waiting game and let Carl carry the battle forward on their behalf...

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