Yahoo! CEO Jerry Yang's rejection of Microsoft's buyout offer

¶ … Yahoo! Summative Assessment

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The decision making on the part of Yahoo! CEO Yang and the pre-Icahn board of directors is blameworthy as the group utilized overly optimistic future financial prediction on growth and intangible assets to respond to a very reasonable buyout offer by Microsoft. In so doing the group, led by Yang demonstrated bad faith toward shareholders. The thinking proved very narrow as the stock and cash buyout offer, by Microsoft was expanded to an even higher number. In short the heads of the company, overvalued the company to such a degree that the offers were refused and the stock fell, over the short- and long-term to less than half the pre-offer value. (Summative Assessment Case, 2009-2010)

Additionally Yang and the Board demonstrated bad faith when they attempted to retain the company through the divulging of potential, other cooperative offers, none of which would serve the shareholders, or company as well as a Microsoft buyout. None of the other cooperative offers, or potential acquisitions would serve the company interests of growth and the national and financial interests of creating a real and potential competitor to Google. (Summative Assessment Case, 2009-2010)Google was and remains the largest internet search engine and Yahoo! And Microsoft's largest competitor, which completely overshadows the smaller company in market share for search engines. (Stockport, 2010) Finally, Yang showed bad faith in his veiled threats to deliberately devalue the company, with bad decisions such as unwise acquisitions and/or collaborative non-gain contracts, to reduce the risk of a Microsoft or shareholder takeover.

There is some sense that the internal actions and decisions making of Yang's biggest critic, shareholder Carl Icahn, who rapidly began buying massive dollar amounts of Yahoo! In an attempt to exercise shareholder's rights to vote in a new board of directors is praiseworthy if he acted as he stated on the urging of other shareholders and excusable if he acted in collusion with Microsoft, as the deal in retrospect really was one that should have been more seriously considered. Yang's antagonists were clearly Icahn and his proposed board replacements and Microsoft's CEO Steve Ballmer, who sought to buy the company for less than what Yang believed it was worth. Yang's protagonists include all those shareholders who offered Yang and the existing board of directors a vote of confidence in the annual board vote. (Summative Assessment Case, 2009-2010)

Task 2

Yang frequently claimed in the press that Microsoft had undervalued Yahoo! In both its first and second cash/share offers. The language Yang used both during the deal and after was far to optimistic, claiming that his intention to stave off the offer or at least raise it to 37$ a share (as compared to Microsoft's 33$ a share final offer 70% above stock value before the offer came in) was based on his belief in intangible assets such as investments and userbase as well as proposed sunny financial improvements. (Summative Assessment Case, 2009-2010)

"We have taken the proposal Microsoft delivered to us very seriously. We made a public statement why we not accepted the proposal." & #8230; "In many ways it has been a galvanizing event for all of Yahoo," he said. "Our board, which has been a very independent board, is spending a lot of time understanding our alternatives."

"the number of people who talked to us about what this could mean for the industry." & #8230; "give me a lot of encouragement. We are trying to make sure Yahoo goes to the right place for our customers, our employees and above all our shareholders." (Hansell, 2008)

Only a few supporters are represented in the case study, or really in the press and are not big players, they were small shareholders who obviously held a grudge against Microsoft, on principle and who were expecting to see their stocks continue to decline despite support of Yang. (Summative Assessment Case, 2009-2010)

Critics of Yang and the Yahoo! team that rejected the Microsoft offer, including Carl Icahn, who developed the proxy threat on the other hand offer sobering words that are backed by the real numbers and tangible assets:

It is clear that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis. I am perplexed by the board's actions. It is irresponsible to hide behind & #8230; over-optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders the choice of accepting an offer that represents a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer. I and many shareholders strongly believe that a combination between Yahoo! And Microsoft

would form a & #8230;force strong enough to compete with Google on the Internet.

In Ballmer's (CEO of Microsoft) words to Yahoo! removing the offer from the table the same is true. His valuation of the company as well as his offer of 33$ per share are bolstered the fact that Yahoo! may have acted rashly in its bid to stave off the offer. "I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table." (Microsoft Corp., 2008)

Task 3

The most likely theory to apply to the culprit's state of mind prior to, during and after the Microsoft offer debacle is a closed environment. Yang as well as other top Yahoo! execs obviously suffered from a limited view of both the company and the market. Yang may have been prematurely appointed to CEO as the co-founder of the company only 13 years old and the team may have been surrounded by a bunch of yes men who were afraid to give Yang the facts on the real strengths and weaknesses of the company prior to the offer. (Arsenault & Castells, 2008) (Rosenzweig, 2007)There is no doubt that Yang, having been an innovator and a risk taker, building the company from scratch through intellectual properties might have had an unrealistic sense of the health of the company based solely on the fact that it did rise from nothing to a multi-billion dollar company in just 13 years and that it would rise from this conflict as well as the overall economic condition of the world in the same or similar manner. (Weston, 2007) the search team that sought out better alternatives than a Microsoft buyout may have also misrepresented the real value of cooperative and acquisition futures that were in the pipeline. (Matzick, Kusters, Krall, Kuhn, & Schumacher, 2008)

Despite countless warnings to the contrary Yang in fact has proposed as part of his plan, either to strengthen Yahoo! Or possibly as some contest to make it undesirable to Microsoft, to do a joint venture with Google, its biggest competitor on some of its services. The decision was seriously challenged by Microsoft as a very unwise move.

We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today.

In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons.

(Microsoft Corp., 2008)

CEO of Microsoft then goes on to list several strategic reasons why such a deal would be unwise, not the least of which is the derailing of any real attempt to [provide a reasonable competitor to Google. (Microsoft Corp., 2008) This is despite the fact that Yang and others at Yahoo! have had many multiple meetings with unnamed important industry leaders regarding the need to build a real competitor for Google, rather than get in bed with them. (Hansell, 2008) (Beyazitoglu, 2009) (Curwen, 2008)

Task 5

The ethical standards that allow blame to be waged against Yang and those who were involved in the negotiations of the Microsoft deal are those which have been noted above, the rejection of a deal that would provide value for shareholders, beyond what they would likely see in the current recession and the loss of the development of a merger that may have created real competition in the market for Google. The potential for insider trading is secondary, and was performed by other culprits of the situation. (Summative Assessment Case, 2009-2010) Though some claim that the proxy takeover fronted by Carl Icahn, was also suspect and should allow Icahn to be labeled a culprit as well, yet despite his maneuvering once the deal had been rescinded by Microsoft it was clear that someone needed to speak for the shareholder in this case. (Hyslop, 2010) (Varallo, David, & Peter, 2009) Though it is fair to show sympathy to Yang, as a co-founder of a fiercely independent and largely successful company, that grew from a simple idea to the multi-billion dollar company in a matter of just 13 years, as he was not likely ready to hand over his company, no matter the realistic terms in the face of Microsoft's offer. Ethically mergers and potential takeovers are a challenge to the fiercely independent American mindset, yet at the same time in the wake of several big name scandals involving big business and the disregard for shareholder interest it is also easy to dismiss such sympathy.

The expected virtue of corporate decision makers is for most seen as one that qualifies them as rarely able to make decisions that go against their own personal gain. Though Yang and others did not use the bottom line to make the decision to reject Microsoft's bid the other way to look at it is to see that those at the top often feel wholly protected by financial downturn, as they without a doubt will likely still receive considerable safety nets in the form of severance and other bonus packages upon resignation or even with continued tenure in the face of economic downturns. CEOs and other high level execs live in a very sheltered and protected world that does not often get threatened, even by criminal prosecution, where laws can be proven to have been broken. (Anand & Beny, 2007) (Aier, 2008) (Hoffman & McNulty, Winter 2009) it is clear from many other examples that public pressure does elicit some results with regard ot ethical business practice, when the potential for real consumer harm is publicized. Yet, the development of company corporate social responsibility statements, and some nominal alignment with them rarely really makes a real change in the manner in which business is conducted. When the limelight is transferred to another scandal or issue corporate decision-makers can be seen to return to business as usual. Though self-regulation is the preferred U.S. method of control real regulations grow on an almost daily basis, challenged by the global economy and growing social awareness of damaging business practices.

Resources

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