We’ve already highlighted Marc Andreessen’s excellent overview of how a Microsoft-goes-hostile-for-Yahoo (YHOO) attack would work, and we recommend it to anyone interested in this deal. In case you don’t have time to work through a few thousand words, here are the key points:
- Microsoft (MSFT) can’t just buy Yahoo by making a tender offer or buying stock on the open market because buying more than 15% of the company would trigger Yahoo’s poison pill, making a full takeover prohibitively expensive. Thus, Microsoft needs to get Yahoo’s board to rescind the poison pill, either by persuading the current board to do it–or by getting this board fired and hiring another one.
- If Microsoft were to make a tender offer, it would likely make it conditional on the board rescinding the poison pill. If it became clear that most Yahoo shareholders wanted to exchange their stock at the tender-offer price, the current board might cave and agree to the deal. Thus, Microsoft could effectively force Yahoo’s board to kill the poison pill without actually getting the board fired.
- In a proxy fight, Microsoft does NOT need to win 50.1% of the total shares–it only has to win 50.1% of the shares that actually vote at the meeting. This is crucial. Many shareholders don’t vote in proxy fights, no matter how dramatic the issues at hand. If Microsoft had to win 50.1% of the total vote, therefore, it would face an uphill fight even if a majority of Yahoo shareholders supported the deal. With the hurdle set at 50.1% of the voting shares, Microsoft has a much better chance of getting Yahoo’s board fired.
- Whoever set up Yahoo’s board election structure blew it (at least if the goal is to protect the jobs of existing management and board members). Most board elections are staggered, so an acquirer like Microsoft can’t oust the whole board in one go. Yahoo’s entire board is re-elected every year, however, which gives Microsoft the chance to get everyone sacked at once. (From the perspective of shareholders, this system is actually great–much more control).
- By law, Yahoo has to hold the shareholder meeting by July 12* (13 months from the last one), or Microsoft can sue to force it to hold one. This legal process, however, could still take 60-90 days, so if Yahoo really wants to stonewall, the meeting might not be held until September. *(This post originally said “June 12”)
Going hostile would still be an ugly process, especially for Yahoo.
It is also not too early to start talking about Yahoo’s financial performance in Q2: Yahoo narrowly made its first quarter, but reports from Microsoft, CNET, and even Yahoo suggest that the display market is deteriorating. It’s not inconceivable that Yahoo could miss Q2, which would shift the balance of power strongly back to Microsoft. Even if Microsoft chooses not to go hostile but to walk away, therefore, it’s possible Yahoo might be available later this year at a much lower price.
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