Things are looking rocky for Yahoo after the latest round in its back-and-forth battle with Microsoft. The war of words took an ugly turn when Yahoo announced over the weekend that it had received and rejected a new Microsoft offer for a search-only purchase. Now, Microsoft is telling its side of the story, and one thing’s for sure: The two tales definitely don’t match up.
Yahoo painted a picture of an unreasonable offer with a 24-hour deadline and no room for negotiation. Its statement described a scenario in which Yahoo’s leadership would be replaced and the company would be destabilized. Ironically, that very statement is making Yahoo’s current management look less stable than ever.
Clash of the Titans
The first clash comes from Microsoft’s assertion that Yahoo Chairman Roy Bostock was the one who actually initiated the idea of the partial purchase offer. Bostock called Microsoft CEO Steve Ballmer Thursday afternoon, the company claims, and stated that “with substantial guarantees on the table and an increase in the TAC (traffic acquisition cost) rate, there are the pillars of a search-only deal to be done.” Microsoft says Bostock “encouraged” Ballmer to draft up a new proposal based on that concept — yet then immediately rejected and ridiculed the offer.
“The only thing that would bring [Microsoft] back to the table is if Yahoo actually approached them,” Rob Enderle, principal analyst of the Enderle Group, told the E-Commerce Times. “They weren’t about to go back out and go after Yahoo after Yahoo had rejected them before. Their allegation that the chairman of the board of Yahoo is the one that asked them to put together the proposal — at least to me — rings true.”
The fact that the deal was then shot down, Enderle suspects, may show internal dissent within Yahoo’s upper brass — a dangerous sign this close to next month’s shareholders’ vote.
“Yahoo needs to look like a company that is being well-run by people who are making measured decisions — and it is not appearing that way. If you’re going to go into a proxy fight, the last thing you want to do is appear like you’re inept,” he noted.
Microsoft explicitly states that its proposal did not include any changes to Yahoo’s management — another direct conflict with Yahoo’s strongly worded statement that the deal would have put inexperienced executives in charge of the company.
“I have a feeling that right now, what may be happening is that Yahoo leadership is very concerned they’re going to lose their jobs,” Enderle commented. “They’re very concerned and can’t seem to get off of their own job security issues.”
Personal motivation may also be playing a role in the ongoing negotiations, with Yang’s own pride in the company he built potentially influencing his business decisions.
“Yang has given every indication that he’s a truly passionate entrepreneur,” Jerome Katz, Coleman Foundation professor of entrepreneurship at Saint Louis University, told the E-Commerce Times. “That’s good and bad: Good from the vision sense, culture sense — it’s easier for a company to stay true to itself if the founder’s at the helm — but the toughest judgment for a founding entrepreneur is getting used to dealing with a public company. There are times when the entrepreneur’s wishes and the shareholders’ wishes start to diverge.”
If Microsoft’s statement is in fact accurate, the question that remains is why Yahoo would have so severely mischaracterized the dealings — whether it could have stemmed from a specific political motivation or just a general disorganization.
“I think it was just the case that Yahoo was not internally on the same page,” Enderle told the E-Commerce Times.
“If the election had been the following day, it would have been a PR coup because it made Microsoft look bad, at least initially. But now that the sides have responded, it now makes Yahoo look like they don’t know what they’re doing. With two weeks to go, this is not wise,” he said.
The Final Countdown
Yahoo’s board insists it can find a more valuable deal prior to its Aug. 1 shareholders’ meeting. Two-and-a-half weeks, however, is not much time to repair perceived damage already done — or to find and finalize a whole new deal with a whole new buyer.
“What makes a company look schizophrenic is when you’ve got warring executives with lots of power and they’re not in agreement. You have a company that seems to be saying one thing and doing another, and I think what we’re seeing is the external representation of a company in turmoil,” Enderle said.
“It doesn’t look pretty for Yahoo,” he concluded.