Tuesday, July 08, 2008

More Details On Jerry Yang's Bungled Negotiations with Microsoft

Wednesday's Wall Street Journal article on Microsoft's second act in pursuing Yahoo was most enlightening.

If you've ever wondered whether some large company CEOs are operating way over their heads, this article answers your question.


The details regarding the extent of Jerry Yang's blunders in the initial discussions of Microsoft's bid, about which I first wrote here, are staggering. That Yang, after driving Yahoo further downhill after Terry Semel's departure last year, would hold out for a higher price than Microsoft's already-insanely generous offer, was unbelievable. As I wrote in that prior post,

"...it's been at least March of last year before the stock's price was, even for short periods, routinely above Microsoft's offer price. Jerry Yang's resumption of the CEO role last summer has cratered his firm's stock decisively since then."

But Yang isn't alone. I also wrote in that post,

"As for Microsoft, I pity their shareholders. If they didn't have half of this offer in cash on their balance sheet already, would any bank lend them all of the money for this takeover bid? Could even Goldman float a bond issue to fund this for them at reasonable rates?

If anything, I think it reminds us, per my many posts on Microsoft, Gates and Ballmer (see appropriate labels), that the company has been very sloppily managed in a financial sense."

Yang's arrogance managed to save Ballmer's shareholders- so far.

Now Ballmer thinks he can go back, with new partners, and dismember Yahoo, keeping the search engine for himself and letting his acquisition partners take their respective pieces of the ailing Yahoo.

Interestingly, though, the Yahoo senior people who dealt with Ballmer and heard his ideas referred to his plan as,

"filling his Internet hole," simply to compete with Google.

Yang's stubbornness on price robbed his shareholders of their just dessert of an overpriced offer by Ballmer to let them exit their misery at the hands of Jerry Yang and his inept management team. This is a great example of how someone who may have been instrumental, long ago, in dreaming up and implementing a value-creating idea, such as Yang, a Yahoo co-founder, can become not only useless, but counter-productive to value creation and realization in the firm's later life.

Ballmer is in a similar situation. He obviously added some value to Gates as they initially created the PC software industry in the 1980s.

But since 2000, Ballmer has been a liability for Microsoft, doing nothing to improve his shareholders' situation, either.

Ballmer escaped making a big mistake once, already, thank to Yang's stupidity and arrogance, thinking he and his team could seriously create more value than the Microsoft offer.

However, now it looks like he won't necessarily escape a second time. The complexity of the deal he now envisions could well make buying all of Yahoo look good by comparison when the dust settles.

Should be an interesting summer to watch these two firms.

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