I wasn’t going to post the following because I certainly do not want to make it sound like I am important or anything, but I figure it is better to err on the side on caution and candor, so here goes:
In light of the fact that:
- I have always been very transparent about my stock holdings
- I have been very vocal about Yahoo! - both before and after Microsoft’s unsolicited $44.6B acquisition offer
- People actually read this blog and it gets syndicated to places like Seeking Alpha and Yahoo! Finance where investors turn to for takes on stocks…
then I think it is right to make the following disclosure:
In the past 24 hours I sold 87.5% of my holdings in Yahoo! after having held on to them for over three years. I decided to retain a small portion to ride it out.
Assuming You Care, Part I:
I remain confident that the deal will close and Microsoft will end up owning Yahoo! However, while I initially maintained that the deal would likely close at $50B (up from the initial $44.6B), I am now less certain about that price.
As recently as this past weekend, I ran some numbers and did some probability testing and concluded that the realistic downside was -25% and the potential upside would be 25% (read that here)…
However, markets are changing, and frankly, I have lost all faith in Jerry Yang to honor his fiduciary duty. He cares less about what is good for shareholders and cares more about retaining control of Yahoo!
Reasons Why I Sold:
a) MSFT Offer
If we are to take MSFT’s offer literally, then the half-cash, half-stock would in fact be worth some $41B now (I think that is a faulty premise: practically speaking, the deal was always to be $44.6B, but I digress). In other words, while MSFT maintains an incentive to up the bid back to $31/share for the deal to close and proceed smoothly, Yahoo! is not deserving that courtesy with its reaction. It certainly is losing any leverage to ask for more. Why?
b) Lack of Options
In business, you are only as strong as your best option. Yahoo!’s got none. Namely, a merger with AOL or News Corp., or a sale to a private equity firm, are practically impossible. I even suggested a crazy six steps to remain separate from MSFT, but come on folks, that ain’t gonna happen.
As many have pointed out: YHOO’s board should have been proactive seeking partnerships and outright merger talks before the disastrous Q4 2007 earnings. They let their corporate development efforts languish, thought they were above the capital markets and a few days after their lackluster earnings call where I personally lost all faith in Sue Decker and Jerry Yang, MSFT pre-emptively sought to acquire them.
c) Yahoo!’s Q1 2008 Report
Combining these factors, I think that due to the utter lack of alternative options for Yahoo!’s board, then all that Yahoo! can realistically expect is for MSFT to maintain the initial $31/share offer.
Why? It’s the economy, stupid.
In light of the psychological effects of the “recession-rhetoric” and the fact that I suspect Yahoo!’s Q1 will be tepid, the ultimate price won’t go higher than $31. YHOO’s Q1 report will be announced April 22nd. AllThingsD’s Kara Swisher outlines this some more here. Henry Blodget echoes the sentiment, too, and adds:
As Yahoo carefully explores the details of every possible non-Microsoft option, the macro environment–and, likely, Yahoo’s performance–gets worse. If, after Q1, Microsoft decides to pull the bid, Yahoo’s stock will plunge to the high teens. And if that happens, Jerry Yang will be alone in his celebration.
d) Jerry Yang
I think Jerry Yang’s legacy will remain intact: the man co-founded Yahoo! He deserves credit, admiration, respect and a special place in Web lore. However, his legacy as a CEO and financial manager is at best shoddy, and at worst: criminal.
Yang had a chance to go back to MSFT and negotiate a better payday, presumably $50B, maybe more. However, by dragging his heels, issuing a fat severance package and opening up futile talks with AOL and News Corp., he in fact only strengthened Microsoft’s hand.
Conclusion:
For three years, I remained long on Yahoo.com but short on Yahoo!’s upper management and board… But ultimately, unlike Yang, I am not emotional about this decision:
At about $29/share, with over a month until the April 22nd Q1 earnings report and no real deadline other than July for MSFT to have to appoint new directors, the time value of mone - for me anyway - is greater than that upside. Again, please be clear: I kept 12.5% because there is a chance the bid goes higher, but the fact that I sold so much shows you how confident I am of that.
Assuming you care, Part II:
Adjusting for transaction fees, volatility in currency exchange rates and Dollar-Cost Averaging, I probably made a few dollars, at most. It’s a shame. With real management, Yahoo! is a $100B market cap company.
But frankly, I never invested in the stock market to make millions, for that you should start a company…
But if you believe that you should risk your nest-egg on a too-rich-to-care emotional CEO who is about to lose everything he has spent building in the past decade: you.are.crazy.
I don’t mind leaving my chips on the table if it means cashing in 87.5% of them to fund the operations of the company… but with the upside becoming increasingly small and the downside becoming large (and the timeline dragging out), I advise any sane shareholder to do… what their investment advisor tells them to do (what… you thought I’d be telling you what to do with your money? You must be crazy).
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March 13th, 2008 at 5:33 am
I let go of my Yahoo stock based on the caliber of the talented people laid off. What’s left at Yahoo other than sub-par directors and VPs?!