Tuesday, May 13, 2008

Jerry Yang’s Empty Nest

I have a friend who will be an “empty nester” this fall. The last of his kids are off to college, and he and his wife will have to figure out what to do with each other and the rest of their lives. It’s a bit scary, he confesses, but he’s up for the next phase of his mortality.Too bad Jerry Yang isn’t. Yang, as you know, is the CEO of Yahoo, the same CEO who turned down Microsoft’s $47.5 billion acquisition offer. Those of you who follow my blogs know that I was critical of Microsoft’s pursuing this deal (see http://www.harari.com/blog/index.php?/archives/169-Poor-Goliath-Seeks-a-Bride.html). I thought it was a lousy buy. Still do. On the other hand, from Yahoo’s end, Yang’s refusal of Microsoft’s offer is, financially speaking, astonishing. Microsoft was offering $33 a share, a 62% premium over Yahoo’s closing prices during the mating dance between the two companies. The only logical reason to turn down the deal is if your own growth strategy will yield greater value for shareholders than the Microsoft offer. Fat chance. To be sure, Yahoo is a giant Web presence, boasting mega-traffic and an admirable 3 hour average time that visitors spend on the site per month. The only trouble is that over the past few years, the company hasn’t figured out a way to monetize that traffic into sustainable and profitable growth. Microsoft CEO Steve Ballmer offered Yang a magic bullet to solve his company’s woes in one fell swoop, and Yang threw it back in Ballmer’s face. Yang’s rejection of Microsoft has little to do with logic. It has everything to do with psycho-logic. You see, Yahoo is Yang’s baby. He fathered (mothered?) it with David Filo. He can’t bear to see the offspring leave home forever, especially into the embrace of a new lover in Seattle. He can’t deal with the possibility of the empty nest. It’s not about money. Yang doesn’t even take a salary at Yahoo. Based on his stock, he’s a billionaire one way or the other. It’s about ego and fear. If Yahoo is swallowed by Microsoft, what’s Jerry going to do with the rest of his life? How will he deal with no longer being the top dog alpha male independent rock star who started and runs one of Silicon Valley’s sexiest dotcoms? How’s he going to deal with his “kid” running off to join the “Evil Empire”? As Bay Area software consultant Lloyd Kurzweil says, “He’s thinking of himself, not the company.” We all think about our own welfare, but in a publicly traded company, the CEO’s primary fiduciary responsibility ought to be to shareholders. Over the years I’ve seen this syndrome pop up with some entrepreneurs. They can’t let go of their baby. When it’s time to sell, or even when it’s simply time to hire some new senior managers and let them run the show, or even when it’s simply time to delegate more control to existing managers, some entrepreneurs grit their teeth going forward. A few simply can’t go forward at all. Once again, if Yang had a legitimate growth plan that would surpass Microsoft’s offer, I’d applaud his efforts to stay independent. But what is it? There are rumors about a “partnership” with Google. Even if such a partnership passed the antitrust test, I predict that Google would eat Yahoo alive. And frankly, there’d be little benefit for Google to go through the hassle. Some say that all this is a bargaining ploy for a higher offer from Microsoft. I doubt it. I think Microsoft CEO Steve Ballmer was unwise to make the offer in the first place, but kudos to him for controlling his own ego and backing off when the ask price became absurd. Some analysts are predicting that Yahoo’s stock will sink down to $21 once the investment community is 100% certain that no Microsoft deal will happen. $21. Compare it to $33. Then tell it to shareholders. That’s some nest Jerry Yang is protecting.


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