Yahoo Chief Executive Jerry Yang and Chairman Roy Bostock defended their decision to do a business deal with Google in a Wednesday letter seeking shareholder support in a proxy battle with activist investor Carl Icahn.
“Based on all key factors – strengthening our competitiveness, protecting our strategic position, generating attractive financial returns – the Google agreement is far better than Microsoft’s search-only hybrid proposal,” the letter stated.
After withdrawing a $47.5 billion bid to buy Yahoo for about $33 per share in early May, Microsoft offered to pay Yahoo $1 billion for its search business and to take a 16 percent stake in the company for an additional $8 billion. The deal would have valued Yahoo at $35 per share.
Microsoft also said it offered Yahoo a 10-year exclusive business arrangement around search and, as part of the deal, guaranteed Yahoo an extra $1 billion in cost savings and search-related payments for three years.
Yang and Bostock disputed that claim, and said Microsoft’s proposal would not have provided “any meaningful improvement to cash flow.” They said the deal to outsource part of Yahoo’s search advertising to Google would generate $250 million to $450 million.
“While Microsoft’s search-only hybrid proposal may have been helpful to Microsoft, our board and management concluded it would have had a significant adverse impact on Yahoo strategically, leaving the company without the operational control of search assets and technology we view as critical to our objective of becoming a leader in the converging search and display advertising business,” the letter stated.
“Obviously it’s intended to head off any dissident investor sentiment,” said Jeffrey Lindsay, an analyst with Sanford C. Bernstein, of the letter. Lindsay calculates that Yahoo is worth $24 per share on its own and $27 per share with Google. He noted that is still “well short,” of Microsoft’s Feb. 1 offer to buy Yahoo for $31 a share, which was subsequently raised to $33. Microsoft withdrew the offer on May 3 after Yahoo said it wasn’t high enough.
“I think the current share price is the best indicator of Jerry Yang’s performance,” said Laura Martin, an analyst with Soleil Securities Group. Martin predicted that shareholders will vote in support of Carl Icahn at annual meeting on Aug. 1.
Contact Elise Ackerman at eackerman@mercurynews.com or (408) 271-3774.
