We have exclusive access to the thinking of an influential Yahoo (YHOO) and Microsoft (MSFT) shareholder. There was some confusion this week about that shareholder’s position on the Microsoft-Yahoo deal, so we figured it was time to clarify.
The shareholder, our editor–and, in a Net-era absurdity, the author of this post–has owned Yahoo shares for the better part of a decade (his largest legacy position from the years before he came to believe that the smartest strategy for small investors is to own index funds). He also owns some shares of Microsoft (same legacy). In an exclusive interview with SAI, the shareholder shares his lastest thinking:
SAI: So you’re actually in favour of this deal?
I like the idea of Microsoft and Yahoo combining their Internet assets, and I want it to happen. I think the combination–if executed properly–will strengthen the companies, provide a far more powerful non-Google option for advertisers (and thus be good for the industry), and lead to the creation of more shareholder value than either company could create on its own.
As a Yahoo shareholder, I’ve been frustrated by the company’s lack of urgency and inability to keep pace with Google over the past eight years (mostly by the lack of urgency–Google’s an extraordinary company). As a Microsoft shareholder, I’ve been appalled by the company’s inability to do better than distant- also-ran online for the past 13 years. I think putting the two companies together will give them both a better chance to succeed.
SAI: And you think the deal will happen?
I do. Mainly because I don’t think Yahoo will be able to present a more compelling alternative. Given that Yahoo’s stock will drop straight to $18 if this deal falls apart, I think Steve Ballmer has a decent chance of getting Jerry and the board fired at the shareholder meeting. I don’t think Jerry wants to get fired, and I imagine he’ll eventually decide that the better of two bad alternatives is to go out on his own terms. I just hope he gets his butt up to Redmond before all his negotiating leverage disappears.
SAI: If you like the combination and you think it will happen, why do you keep referring to it as a “disaster”?
I think the combination as currently proposed will be a disaster, and I want Jerry and Steve to pursue a different one. I want Jerry to persuade Steve to drop the idea of acquiring Yahoo into Microsoft and instead combine the assets by spinning MSN and $10 billion of cash into Yahoo–in exchange for a 51% ownership position.
This alternative would give Microsoft control and create all the advantages of an asset combination, but also allow the combined entity to function independently, free from bureaucracy, conflicts of interest, competing priorities, customer confusion, brand confusion, and so forth. It would also be a lot less costly and risky for Microsoft shareholders: If Microsoft ponies up $45 billion for Yahoo and the combination doesn’t work, the deal will be the second-worst major Internet merger in history (and it will destroy a huge amount of value for Microsoft shareholders). Lastly, this structure would also create a more tax-efficient transaction for me and other long-term Yahoo shareholders, but that’s a secondary concern.
So there you have it: an influential Microsoft and Yahoo shareholder likes the combo, thinks it will happen, and thinks the currently proposed structure will be a disaster.
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