A source close to Yahoo, a source close to Microsoft, and Carl Icahn disagree about a critical part of the search proposal that Yahoo rejected over the weekend: whether or not it required that Carl Icahn be given control of Yahoo.
This is important because this condition was an obvious deal-killer. Absent such a condition, Microsoft’s new search proposal is actually reasonable (or at least worth serious consideration).
The source close to Yahoo says:
- The proposal made Friday was a “joint proposal” made by Steve Ballmer and Carl Icahn.
- The proposal required “an immediate replacement of the Board with Mr. Icahn’s nominees and removal of the top management team at Yahoo!” The latter language is included in a document Yahoo filed with the SEC today.
The source close to Microsoft says:
- There was never a “joint proposal.” Carl Icahn and Steve Ballmer delivered the proposal together, so it could have been interpreted as a joint proposal, but it was not a joint proposal. (Hmmm…)
- Microsoft’s proposal does NOT require a change in control at Yahoo.
Carl Icahn says:
- The proposal was a joint proposal (Carl refers to a “we”)
- The proposal DID require the removal of Yahoo management, but not necessarily their expulsion from the company: “we were willing to discuss keeping a number of the current board members and Jerry Yang as Chief Yahoo!”
We asked the source close to Microsoft whether Microsoft had changed its proposal since Friday. The answer was no. We asked the source close to Yahoo whether Yahoo might have been wrong about the change-in-control provision. The answer was, approximately, ‘Yahoo just filed a statement with the SEC saying the proposal included a change-in-control requirement and Yahoo did not commit fraud.’
So here’s what we think happened: We think Carl Icahn’s personal agenda screwed up what otherwise might have been a reasonable search offer from Microsoft. (This is one hazard of having a deal-broker who also has major skin in the game.) We think Microsoft has since recognised this and is running as far from Carl as it can.
Microsoft does not care about anything but Yahoo’s search business. All of the other terms in the convoluted proposal–dividends, tender offers, Asian assets, loans, etc.–are just a sop to Carl Icahn and other Yahoo shareholders still annoyed about the blown merger deal. These terms are obscuring a Microsoft search offer that is starting to get interesting.
With a revenue guarantee of $2.3 billion a year for five years that is only dependent on Yahoo maintaining its current home page traffic, we think Microsoft’s latest search proposal at least merits a close look and, possibly, a counter-offer from Yahoo. Thanks to the baggage of all those other terms, however, we understand why Yahoo rejected the proposal out of hand. And we suspect the majority of Yahoo’s shareholders would have rejected it, too.
Tomorrow, we start brokering a peace…
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