Yahoo’s Yang Has No Regrets — He Should

34 Comments

jerry_yang_thumbIn hindsight, we are all geniuses or simpletons — it’s just a matter of how much time we give history to ferment. At this point, it doesn’t look like history will be kind to Jerry Yang, who has had the unenviable job of rescuing the company he co-founded. A man of lesser moral fiber would have kicked the search giant on its duff, and that’s after giving it a thorough shake to wake it up from its stupor of mediocrity.

Instead he has chosen to reign over what has become a listless battleship without ammunition. Yang is a conscientious person, but he might be deluding himself. Some of his soul-searching about the roads not taken bubbled up during a conversation with John Battelle at the Web 2.0 Summit in San Francisco today.

Among them was why he didn’t accept the $33-a-share acquisition offer from Microsoft (s msft). “A lot of people have replayed that in their minds,” was his reply. “I’m no exception.”

He went on to insist that Yahoo was ready to negotiate, but that Microsoft withdrew. “At the right price, we were willing to sell the company,” he said, even though we all know he didn’t really want to sell to the Redmond giant. But he insisted it was their call. “We believe that they walked away.”

There is a sense of tragic self-delusion emanating from the comments of this nice man. Perhaps that explains his faith in the now scuttled Google-Yahoo advertising deal. “We’re disappointed with that,” he said when asked about it by Battelle. “It was certainly very defendable. I really thought that the government in this case does not understand our industry. They have a market definition that I think is too narrow.”

When Battelle asked why he was the right guy for Yahoo, Yang said, “I wanted to make the change at Yahoo (s yhoo) I believe I can make. Six months into it we had the events with Microsoft and now we have this economy. I don’t regret any minute of what happened even though it’s not the most fun thing. It’s a part of me.”

Maybe he should have regrets. Yahoo has been on a downward spiral, with a declining stock price, plummeting morale in its troops and so far, no clear stratagem for digging out of its listlessness. Yahoo’s next likely move – buying AOL – will be like trying to fix a cut in the carotid with a Band-Aid.

With reporting from Liz Gannes.

Image courtesy of Yahoo.

34 Comments

Gus Swan

Yang’s foot-dragging which was emotive rather than economic badly let down his shareholders, which is his primary duty in the role he holds. Google walks away – what a surprise. Any idiot knew that there joint-search play was a spoiling tactic and all they needed was a figleaf defence to walk away when the danger had passed. I guess the torrid state of the markets makes them think a MSFT acquisition is much less likely. Yahoo shareholders have little prospect of relief either through another buyer or a reverse of fortune. Yang should be regretting that fact very deeply.

Om Malik

@ Ted Murphy,

For years, Yahoo has been chasing the mythical unicorn of transferring the offline advertising model onto the web. It hasn’t happened, and it won’t happen. The only business models that work on the web are search advertising, classifieds advertising and ecommerce. It all comes down to ecommerce — search and classifieds only work because they are so closely connected to ecommerce.

I would like to say — at large scale, or at the scale of Yahoo, that doesn’t really work. The model of display advertising that is “targeted” to an audience is more effective in smaller, niche web properties, except the problem is that we have advertising community whose livelihood depends on shoveling lots of ads (at volume) and at scale that needs less accountability.

Om Malik

@Alex,

We changed the font type and size to clean up the site a little and make it easier to access overall. let me know if you don’t care much for the design.

Om Malik

@all…. sorry guys for not being able to participate in the conversation — the coverage of the conference aka lot of socializing is making it really tough for me to get anything done today. But I see you all are doing very well amongst yourselves and really don’t need my input.

Paul

Good for Yang to stick to his convictions. Selling to MS @ $33 might not have eeven held up after them market started dropping so fast. These deals take time for approvals and you can bet Ballmer, who’s stock also took a beating would have wanted to renegotiate. Notice MS has not done much since the Yahoo failed buyout.

Rav

@Harry

Without any name-calling, here is a quick rebuttal, and my last comment on the topic.

Yang was trying to get MSFT to guarantee value and also improve on its offer. Howz that for fiduciary responsibility? As for the YHOO shareholders, they got plenty of opportunity to cash out during the negotiation, at much better prices (in 30s), compared to about $25 that the deal would have been worth today. The real wild-card was that MSFT abruptly walked. Not just Yang – but Miller, Gordon, Icahn, Boone Pickens – all were taken aback by the surprise reaction from MSFT and those guys are smart.

As to worth of YHOO – if you carefully read my comment, I call it a house on fire, in other words a fast depreciating asset. The only reason its at ~$14 is because MSFT is desperate to compete with GOOG, and may make another offer. However, considering MSFTs failures in online domain, it could still be worth ~$20 to MSFT even after significant loss of value during last year.

2011 is long time in internet domain. If there is hyper-inflation by then it could be worth more. If there is serious deflation, it could be worth 0.

The point of my comment is that sour YHOO shareholders should blame themselves first, in addition to Yang and MSFT, if they didn’t cash out in the 30s.

Alex

@ OM

….”In hindsight, we are all geniuses”

Great line. So true

quick thing. Either my eyesight got worse over night or your font size got smaller. What gives?

Harry

Oh Rav, Larry and Sergey can do what they want with THEIR share; they own them. Bringing this up as a rebuttal to Yang passing on MS is both ignorant and foolish.

1) Yang does not own Yahoo. He is one of many shareholders. His job is to do what’s best for shareholders. He has a fiduciary responsibility and failed miserably.

You’re completely off base and time will be the ultimate judge. If Yahoo is worth more than $50 billion within 2-3 years, kudos to Yang. He’ll be a big winner.

The potential upside from a present value of MS’s $44 billion offer, however, is quite small in my view. The threat of inflation, access to capital and other macro trends highlights Yahoo’s hubris in thinking they’ll create value in excess of the MSFT offer. To turn down cash in hand was very foolish. So far, time is proving my POV correct as Yahoo has dropped to $20 billion.

Again, time will tell. Let’s revisit this conversation in 2011…

Rav

@Harry

1) By your measure both Larry and Sergei are foolish. They could have sold tons of their GOOG stock at 747 last oct, and not lost “billions”. Hindsight is always 2020. If nasdaq had been at 3k instead of 1600 today, and economy going great, YHOO selling out to MSFT would have looked stupid. And GS, arguably the smartest financial minds, had to sell preferred shares to Warren Buffet to raise cash after their stock tanked 60%. Coulda, woulda, shoulda. YHOO hoped that deal with GOOG would go through and allow them to remain independent. There was a pretty good chance of that happening.

2) Yang was negotiating for valuation guarantee and believed that MSFT was still negotiating in good faith. MSFT tried to pull a fast one on him by pretending to “walk” several times, only to come back again. I wouldn’t be surprised if they come back again. YHOO is like a house on fire that MSFT is interested in buying. Of course the more MSFT waits, the house burns some more and they get a better price. But better price doesn’t mean better value. In hindsight, the tanking of MSFT stock proves, why it was a good idea for Yang to insist on valuation guarantee.

3) People are too hung up on Broadcast.com buy in heyday. They forget that it was a crazy time, with PALM worth 75B$+, with only millions in revenue. Several 500B$ companies. CSCO, MSFT at all time highs… So everyone was crazy, not just YHOO.

Harry

Rav, you’re completely missing the point.

1) Yang could have cashed out at the top unlike other companies. He had a bird in the hand but opted for 2 in the bush. He’s as foolish as folks who held tech stocks through 1999 only to ride the elevator right back down from 2000-2003. If Yahoo had an offer to get bought for $100/share in Jan 2000 but passed time would prove them to be fools, regardless of what happens to competitors. What happened over the last 8 months is a similar situation.

2) Yang wouldn’t even agree on a price; $33 “significantly undervalued the company”. Deal structure is moot until price is agreed up. He could have negotiated for a larger cash component but that’s neither here nor there. Net-net, the MSFT offer was the best opportunity for YHOO shareholders to realize value. Yahoo will not reach $30 anytime soon. Executives have large option grants with strike prices over $30 so why would they do the deal? It would have been the best thing to do for the company and employees, but not for management. Anyone actually read that goofy severance plan??

Yahoo management will be remembered for THE blunder of recent times. This will be remembered just as Broadcast.com is remembered for bilking Yahoo out of $5 billion back in the hayday…or about 25% of Yahoo’s current market cap.

Harry

Rav, you’re missing the point:

1) Unlike most other CEOs, Yang had the opportunity to cash out at the top. He’s as foolish as the folks who held tech stocks up through 1999 only to ride the elevator back down. If Yahoo had the opportunity to sell the company at $100/share in January of 2001 it would have been a brilliant move; this was a similar situation.

2) Yang didn’t even agree to $33 so the deal structure is a moot point. Yang could have negotiated for a larger cash component. Net/net, the cash/stock MSFT offer would have been the best offer for shareholders and employees alike. Upper management are the only ones who would have lost, with option strikes set above the offer price.

Time will prove this to be THE blunder for years to come. It’ll be pointed to and laughed at for years to come….not unlike YHOO’s purchase of Broadcast.com for $5 billion or 25% of Yahoo’s current market cap.

Rav

The original MSFT offer was 50% cash + 50% stock. It would be worth ($31+$22)/2 = $26.5/share today. It would probably be even less, because MSFT stock would have tanked even more if the deal had gone through and it held less cash. If MSFT makes another similar offer, its likely that its own stock will tank at least 10-15%. So the deal would likely be ~$20 all cash or $10 cash + 0.5 share of MSFT per YHOO share. So through all of these shenanigans MSFT would have saved < $6 per share. But then YHOO franchise has lost much more value in the interim, so effectively MSFT’s ability to compete with GOOG using YHOO is significantly diminished.

YHOO was always a loser and has come out loser again. However, it has provided ample trading opportunities during this time. Also everyone holding the stock should have realized that it was a speculative investment, full of uncertainties. This was reflected in the volatility of YHOO. There were plenty of opportunities for stock holders to sell in the $30’s. But everyone including the big shareholders (Bill Miller, Gordon) held out for more. So its ingenuous to just blame Yang for being greedy / wanting more.

But MSFT is a bigger loser in this. GOOG has achieved its objective of fending off MSFT-YHOO deal, till a friendly (OBAMA) administration takes over. They are the big winners in this. Now the ball is in MSFT’s court. If they make a full offer, then GOOG will use the same ANTITRUST tricks against MSFT. If they don’t go after YHOO, then GOOG will remain unchallenged, and go after MSFT’s cash cows.

Just comparing the MSFT, YHOO and GOOG charts for the year, they all lost close to 50%, the actual loss somewhat dependent on the PE. So I don’t see why Yang should regret any more than CEOs of MSFT/GOOG. To close the transaction at any point MSFT would have to offer a premium. If it waits longer, YHOO loses more value and it would be more difficult for MSFT to catchup with GOOG, even after acquiring YHOO. Yang is applying this simple logic, that beats Ballmer / Gates, when he insists that MSFT needs YHOO in order to challenge GOOG.

http://finance.yahoo.com/echarts?s=YHOO#chart1:symbol=yhoo;range=1y;compare=msft;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

Milton

Yang’s statement “At the right price, we were willing to sell the company” is truthful, however the “right price” to Yang and the management team is such an outlandish number it is impossible for anyone to buy them. $33 wasn’t enough even though the offer represented a generous premium. Any business person with an ounce of industry insight knows Yahoo won’t see a stock price north of $30 anytime soon, if ever, making the MSFT offer even more attractive. If the management cannot create value exceeding Microsoft’s offer by the end of 2010 they should step down. Let’s face it, though, there aren’t many companies eager to offer Yahoo SVPs & EVPs prominent, well paying positions in large public companies. Management will do absolutely anything to hang onto their only chance of raking in big bucks, even if that means fleecing shareholders and laying off thousands in the process.

I hope investors and analysts press Yahoo to revise their 3-year plan forecasting phenomenal growth over the next 3 years. This was, after all, the justification for snubbing Ballmer’s offer. What’s the plan now Jerry, Sue, and those advocating for an independent Yahoo. It’s your move.

http://www.slideshare.net/redundante/yahoo-investor-presentation-329594/

videomonetization

I think Yahoo search gained even 0.5% each quarter against Google, their won’t be as much criticism and press devoted to lambasting the Internet giant. Its not that other folks have a strategy to turn around Yahoo. Steve B is burning millions of dollars each quarter standing up Microsoft’s Internet presence and as for Google nothing succeeds like success. Rewind six years ago and Google was a cute little webpage with no business plan. Its a grind and no matter who comes it will take time. Microsoft would have bought Yahoo and run it to the ground by breaking it up.

Long term value is not created by looking at short term benefits.

Ted Murphy

Mr. Yang made some mistakes, no doubt. For years, Yahoo has been chasing the mythical unicorn of transferring the offline advertising model onto the web. It hasn’t happened, and it won’t happen. The only business models that work on the web are search advertising, classifieds advertising and ecommerce. It all comes down to ecommerce — search and classifieds only work because they are so closely connected to ecommerce.

Yahoo has to accept the realities of the ‘net and focus their efforts on what works. What works is search, classifieds and ecommerce. If the company decided to do this, there is noone I’d rather have in charge than Mr. Yang.

Allan

Whatever the economics of the situation are, the fact remains that Yahoo! has been producing some of the best software tools in the industry in recent years. I *love* working with YUI et al. and I think that their role in developing an open, free internet should not be understated. Maybe it would have been good for its shareholders, but the MS deal would have been really, really (really)bad for the Internet and the open web. You can’t put a price on what Mr. Yang has saved us from.

chirag

There are other unlikely suitors (not necessarily as a buyout, but in various other ways).

e.g.
– Amazon.com, which is now becoming more like a software company then someone selling goods from a warehouse

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