Now that Microsoft (MSFT) has called what everyone but a handful of folks on Yahoo’s board assumed was a bluff, Yahoo’s stunned shareholders are left with a $22 stock and vague hopes for “Plan B.”
Anyone have any compelling ideas for “Plan B”? If so, they haven’t told us. All the “Plan B” ideas we’ve heard–with the exception of the Google outsourcing deal–are boring at best. Legg Mason portfolio manager Bill Miller is one of the smartest people we know, and his “Plan B” is downright dumb.
What does Bill think Yahoo should do now that Microsoft’s $33 offer is history? Use its $2.5 billion of cash to buy back stock.
If Yahoo really thinks $33 a share “substantially undervalues” the company, then, at $22, it should frantically buy back every share it can.
In theory, this makes sense. In this real world, it doesn’t.
Because Yahoo is competing in an arena in which $2.5 billion of cash is chicken feed. Yahoo isn’t in “harvest” mode. It’s not CBS (CBS) or Time Warner (TWX). It shouldn’t have to make financial moves to increase shareholder value. And, more importantly, it shouldn’t be sacrificing the relatively small amount of financial flexibility it has just to produce a short-term bump in the stock.
If Yahoo is interested in short-term shareholder value creation, it just passed on the best opportunity it is ever likely to get. If it’s interested in long-term value creation, it is presumably going to have to make some acquisitions. So why on earth would it reduce its flexibility to do that?
Whatever Yahoo does, Plan B shouldn’t be using its relatively small cash pile to buy back stock. Any other ideas?
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