Microsoft remains committed to its carrot/stick Yahoo takeover strategy: Yesterday, charming chairman Bill Gates reminded Yahoo shareholders that Microsoft isn’t going to raise its bid (until Yahoo comes to the negotiating table) and blew some smoke up Yahoo engineering posteriors (carrot). Today, Microsoft tells the NYT it is going to authorise a proxy fight this week (stick).
The proxy news is well-choreographed. Microsoft doesn’t want to go through the hell of trying to get Yang & Co fired, but it has to keep demonstrating that it is willing to do so if Yahoo keeps playing hard-to-get. Thus, as long as Yahoo continues to try to search for an escape route, we will continue to get these proxy-fight nuggets.
The NYT offers a few reasons why Microsoft might want to go the proxy route (below), but these are likely largely aimed at persuading Yahoo management and shareholders. Proxy fights are ugly, and one here will keep Yahoo paralysed for months. Although paralyzing Yahoo might help Microsoft in the near term–because it will increase the pressure on Jerry & Co. to sell–it will hurt Microsoft in the long term, because Yahoo’s competitive position will continue to erode.
[W]ageing a proxy fight to oust Yahoo’s directors is comparatively cheaper [than raising the bid, which will cost $1.4 billion per dollar increase]. Much of the cost involves the hiring of a proxy solicitor and preparing mailers for Yahoo shareholders.
Furthermore, Yahoo’s board is vulnerable in a proxy fight. As The Deal Professor has remarked previously, Yahoo does not have a staggered board, so all of its directors are up for nomination this year. And, per section 3.3 of the by-laws, in a contested election, directors are elected by a plurality of votes cast.
DealBook and The Deal Professor have noted previously that Microsoft’s aggressive approach has long left the door open to this move. But some observers said that the software company would prefer a friendly deal, especially given the possibility of Yahoo employees leaving en masse if a bitter takeover fight erupts.
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