Yahoo!'s "Just Say No" Defense: What Are They Thinking?

M&A is has a raft of strategies and tactics that were popularized by Bruce Wasserstein but have been practiced by many both before and after he terrorized buyers and sellers alike at First Boston. The "Just Say No" defense is a legitimate tactic for a Board to take, but it generally needs to be played in the presence of a very important condition: an alternative. Historically companies that have simply rebuffed bids containing 60% premiums to last trade talk about things like spin-offs, divestments, share buybacks, leveraged recapitalizations, things like that. Simply saying "this bid inadequately values our fine organization" is simply a joke. Microsoft presents no financing risk and requires no contingencies, while Yahoo! offers no viable alternative worth its weight in dog doo. They are going to be swallowed alive, and the chances are better than not that it will happen at $31, the original offer. If Microsoft pays any more at this point it is simply out of mercy and goodwill, not because they have to or that they should. They outmaneuvered Yahoo! good and deserve to buy it at the bid price.

So what should Yahoo! have done, given that they are in shambles, lack a well-defined plan for maximizing shareholder value and have had ample time to right the ship since Jerry's return? I'll tell you - announce to the world that they are proud and flattered that Microsoft sees the value in the Yahoo! brand, its technology and its franchise, and that it would be willing to engage in negotiations. This way, it might squeeze another $2-$4 per share for Yahoo!'s downtrodden shareholders, providing at least some salve on what has become a gaping wound. But once you tell a supremely-funded, laser-focused acquiror to take a hike, you have put yourself in a world of fiduciary and PR hurt. Microsoft will wage a proxy fight and will win, because the threat of them backing away will cause the stock to drop $5 - easy. That won't make the Board look too good, will it? Further, they'll lose the war in the press, looking like a bunch of incompetent boobs who not only couldn't fix a broken company but spurned a golden offer from the only bidder on the block! Who do these people think they are? Beats me. I hope their D&O policy is paid-up.

Might this saga turn out differently? Sure. But based upon the facts I see before me, Yahoo!'s goose is cooked.

UPDATE - recent related stories:

• Wall Street Journal: Microsoft Stands by Yahoo Bid
• New York Times: After Rejection by Yahoo, Microsoft Hints at a Fight
• Silicon Alley Insider: As Expected, MSFT Stands Firm, Doesn't Raise YHOO Bid

Comments

[BrandMasterFlex]

Bankers, dude. Bankers.

As you so perfectly stated, Yahoo sucks. And so does MSFT except that their greatest decision, to keep everything in cash, has allowed them the freedom to be even more stupendously stupid. It's a merger of two antiquated remnants of the dotcom era. This merger can be likened to Ford buying Chrysler to combat the more efficient manufacturing of the Japanese...oops, Mercedes already made that mistake. Sorry, but buying a customer list called Yahoo will not help MSFT finally enter the internet revolution.

Anyways, going back to my original point, the deal will get done because of bankers. I don't think any self-respecting Yahoo shareholder actually would want to turn this deal down. But, you just can't take the first offer on the table...come on! How can you justify 100bps on 44bn without putting up a fight? I'm pretty sure Yahoo's finance team has already opened up the bottles of Christalle.

It's a win win for Yahoo since they should be glad anybody wants the crappy company. A couple of $/share...ehhh who cares? For MSFT...it's just another dumb decision that they won't know they made until they figure out what to do with that warehouse full of Zunes.