Yahoo! to Microsoft: No surrender! Yahoo! has replied promptly to an open letter sent to them by Microsoft's chief executive Steve Ballmer on Saturday. Ballmer's letter set Yahoo! a three-week deadline to conclude an agreement or Microsoft would take its $44bn offer directly to shareholders. In response, Yahoo's chief exec Jerry Yang said the board of …
The letter we just saw extracts of was the good thing to do if Jerry wants to avoid being put in jail.
He's legally bound to maximize EXISTING shareholder's value, so he can't just say "I don't want to give you Yahoo".
But he can say he expects more details, and can provide a valorisation of Yahoo that seems reasonnable (as in "explained, however weirdly") to ask Microsoft to give more or go to Hell.
It'll probably only postpone the inevitable though. Yahoo is probably worth less the those 44 billions, and whether it's a good deal for Microsoft or not is moot, since it's microsoft's (and the world's) problem, not Yahoo's shareholder's
"Your own statements have made clear the strategic importance of Yahoo!'s substantial assets and capabilities to Microsoft. "....... Hmmm?
Would a hostile approach from Microsoft now indicate that they are lacking substantial assets and capabilities of strategic importance?
Apparently tomorrow, there is a whole raft of new exploits to be plugged by Windows Updates.
"What about consumer value?"
It's not Yahoo's board role to care about consumer value.
It's the consumer's role.
Yahoo's board is there to maximize the riches of the shareholders, and that's it.
They even can go to jail if they wilfully care about the interest of consumers in any way other than as a means toward maximizing shareholder value.
If the shareholders cash out, then consumers can go to Hell since they won't be able to deprive the shareholders of the money Microsoft will give them. As a logical consequence, Yahoo is legally bound not to consider consumer value, whether we like it or not.
M$ Said: "It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees."
Yahoo! Said: "Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit."
That's Microsoft and Steve Ballmer all over. Come on Steve, what's the mantra?
"Solicitors! Solicitors! Solicitors! Solicitors!"
Ok, it should be lawyers but that doesn't ring as well.
Of all the companines out there, Yahoo! seems to be the only one standing ground against what is for all purposes a hostile takeover by Microsoft. Its even battling against stupid shareholders who are more interest in a quick cashout than the best interests for the company.
This is one of the reasons Capitalism isn't working: its bias on the shareholders' side undermines not only the consumer side, but also the company itself. See what happened to Computer City; CompUSA took over, then sold off everything and killed the store. I didn't understand how it was possible for this to be legal, but thanks to this Yahoo! controversy I've finally learned why: it's legal as long as the shareholders earn a big buck.
I've also learned that it might not be a good idea to do an IPO as it turns your company into a sitting duck. Screw that!
But, aha, does that pernicious legal doctrine stipulate a time frame? If not, then all Mr. Yang has to do is say "we believe that in the long run, staying out of MS's hands increases shareholder value far more than falling into the hands of the Balmerzilla."
I really think it's time that shareholder value be put in the backseat and the first duties of corporations be toward society as a whole, customers, and employees. IOW, yes, you can maximize shareholder value, but only in a framework of behaving honorably, honestly, and openly, in the broadest possible senses. If doing so affects the bottom line, it's just a cost of doing business.
After all, corporations benefit enormously from the legal fiction of being a person, and that fiction could be made null and void with the stroke of a pen.
Of course, insisting that honor, honesty, and openness be the order of the day disqualifies a great many of the psycho- and sociopaths who infest the higher levels of management these days. Ditto for marketing types and spin doctors. I guess they can get new jobs flipping burgers at McDonalds.
PS: MS seems to have overlooked a minor detail. Of all Yahoo's customers, some are also signed on to the MS equivalent and some are not. Of those who are, grabbing Yahoo will not increase the MS online customer base, while those who aren't on MS already are so by choice and are quite likely to jump ship. MS also needs to look in the mirror and admit that they have a proven track record of incompetence when it comes to providing content. Buying Yahoo and then attempting to Redmondize it is a guarantee that whatever is good about Yahoo now will become bad.
"What about consumer value?"
Ah hah hah ha ha haaa HAAA HAAAAAAAAAA *plop*
Bugger, I just laughed my head off.
To be clear, big business cares not a crap for its consumers, or its human resources. It cares only for its shareholders, and indeed executives can end up neck-deep in legal trouble if they don't put the shareholders first.
Whereas it's legally quite acceptable for them to abuse their workforce by sending all the jobs off to low-cost labour markets and abuse their customers by producing crap products (and then when they try to complain, forcing them to attempt to communicate with someone whose first language definitely isn't English).
If a public company happens by chance to produce good services or products, it's only because that's proven to be the best way for them to improve their market value and make the shareholders happy.
While I agree with your sentiments, I disagree with your assessment that Capitalism isn't working. Most properly run capitalism *IS* working !! It is only rampant mad-dog American-style capitalism that isn't working.
There are millions of companies that are owned by families or groups of friends and have only sold or disposed of a minor part of their capital in the open market. These companies are rather harder to "takeover", hostile or otherwise without a very, very good offer. If there is one, the shareholders cry all the way to the bank !!
American-style capitalism is where the majority of the shares are sold and the founders pocket the proceeds of the sale but still keep the management of the company and run it as though they still own all of it. In the event of a hostile takeover, the side with the most votes (directly owned or persuaded/coerced into supporting them) will win the fight handily; unless the relevant government steps in and declares that the sale was against national interest. This is known as protectionism. America, the self-proclaimed champion of free trade, is the *MOST* protectionist country in the capitalist world !!
Once a company has been taken over, the new owners do not have any duty to the consumers other than to provide a merchantable product(s), even though the previous owners owe the consumers a debt of honour for believing in them and their company and their product(s).
BTW, if you think a company owes its consumers a metaphysical "debt", then should not the consumers owe the same "debt" to the company and rally round to support it in its time(s) of need, even to the extent of putting their hands into their pockets and stumping out hard cash to save the company ?? A "debt" of care cuts both ways, you know !! When was the last time you tried to save a failing company that made a product that you liked ??
M$ Said: "It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees."
This sounds eerily similar to Hitler's "offer" to the Czechs for Sudetenland !! I believe it was loosely translated as "Accept our offer or we'll invade you !!" Does anyone know if Steve Ballmer has a black toothbrush stuck to his upper lip ??
"From a practical standpoint however, something is missing." - Yes, it is called customer loyalty !! Why should the company worry about the customers when the customers can hop off next door to buy something for a penny cheaper !! This is the result of rampant American-style consumerism. Gone are the days when the retailer and the customers knew and trusted each other personally !!
If you want the right to a wide choice of goods, then do not expect the providers of those goods to care for you. If you want sup with the devil, be prepared to sup with a long spoon !! The road to hell is paved with "one time only special offers" !!
Once a company is public, it really is no longer trading in the old sense of the word: selling goods to customers for a reasonable profit.
Instead, the goal becomes short term stock enhancement. The true customers are now the investors (stock holders and potential stock holders). The people that buy the services (ie. what you'd normally consider customers) are now considered to be assets of the company. ie. "You should buy our stock for $x because we have y% of the customer base."
That model works as long as the customers stay with the company. For search and similar services, the association is only as long as the time it takes to make the search. email and groups keep people around longer.
Both MS and Yahoo are losing in service space. They have none of that synergy stuff in any sphere. The pain of combination is far larger than any gain (if there is any at all). Combining MS and Yahoo will give them a combined total that puts them ahead of Google, but the trend does not change.
Apparently MS spent $5bn on Vista which is their bread and butter. It looks like they could have spent more on it. If they are prepared to spend 9x that on Yahoo (which does not look like a money spinner) then you have to doubt their reasoning. Surely it would be far better for MS to put some big money into sw development?
Paul and Ishkandar are completely right about capitalism. Otherwise, not only might the letter mention the interests of the consumer, it could also cover the clash of philosophies between Microsoft's proprietary systems and Yahoo!'s love of (and contributions to) the open source community. The possibility of Microsoft trampling on Yahoo!'s infrastructure with its own bloated and insecure 'equivalents' is what worries me the most.
Actually their both wrong... Neither Yahoo! nor Microsoft or any other company for that matter has any obligation to its consumers unless its in a legally binding contract with them. They're there to make money, they are not some humanitarian organisation. Thats whats capatalism is all about, making money - nothing more, nothing less. If you don't like it, tough, take your custom somewhere else if you don't... easy as that.
"From a legal standpoint regarding shareholders and company directors you are, of course, correct.
From a practical standpoint however, something is missing. Wealth isn't created without customers.
"
I agree on that, but what do the shareholders have to care about that as long as the loss of wealth is not on their own shoulders (since Microsoft will pay them handsomely to go out)?
It's a shame, agreed. It the way society is made today, we both agree on that too.
No, he doesn't have to maximise existing shareholder value. Yahoo can disperse any obstreperous lawsuit for not getting the maximum existing shareholder value by any number of means, including:
a) it's not in our charter to do that
b) it is against the stated aims
c) maximum current value means severely reduced future performance
After all, maximum EXISTING revenue can be attained by selling off EVERYTHING. Gives a huge influx of current cash. Ongoing revenue? Well, that's not EXISTING value, is it, that's future value.
Your sort of thinking is exactly what makes current corporations an extreme threat to society and is the result of accountants that know nothing but cost.
Make your mind up. Are we customers (who can then move to a new company to supply our needs) or consumers (who must eat of the trough)? Because you DO owe your customers a debt of gratitude for employing you in seeing to their need.
And when employment became all "you can't expect a job for life" from management, why were they surprised when the employed left saying "hey, don't expect me to work here for life".
"No, he doesn't have to maximise existing shareholder value. Yahoo can disperse any obstreperous lawsuit for not getting the maximum existing shareholder value by any number of means, including:
a) it's not in our charter to do that
b) it is against the stated aims
c) maximum current value means severely reduced future performance
After all, maximum EXISTING revenue can be attained by selling off EVERYTHING. Gives a huge influx of current cash. Ongoing revenue? Well, that's not EXISTING value, is it, that's future value.
Your sort of thinking is exactly what makes current corporations an extreme threat to society and is the result of accountants that know nothing but cost."
Unfortunately, you are awfully wrong on all counts.
a) It IS their charter. As a matter of fact, management of a publicly owned company are trustees of the actual owners and they are bound to do what maximises the financial returns of the owners. You may like it or not, but it is their only role, by law.
b) It is not against stated aims, see above. Stated aims are to make money. The most possible money.
c) Maximimizing current value to the detriment of future value is in general indeed an issue. Here, it is not, because there is NO future value. The shareholders cash out. As a consequence, the fact that MICROSOFT's shareholders may lose value because of their future ownership of a crippled Yahoo is not the current owners', and thus the current management's business.
Indeed, it may well be that Microsoft+Yahoo will be worth less merged than not merged. But Yahoo's shareholders will have gotten more cash than they ever could by keeping yahoo independant.
It follows that your point is moot.
On the non numbered part of your post, I never said you had to maximize CURRENT value in general. In fact I very precisely said the opposite in the previous yahoo story. What counts is maximizing the value in the future (in fact, at every point in the future).
Selling off is not always good because it is good only if the cash returned yields better future revenues than keeping the cash invested.
Here, though, it SEEMS to be the case. The offer is high enough that you could take Microsoft's money, invest it safely in low-yielding treasury bonds, and still be better off in 5 years as what Yahoo would have been worth by then (and you'd run much less risk).
As to my sort of thinking, I would ask you to avoid judging what I think when I never uttered a personal opinion in this thread.
I have only been stating facts about the duties of management of a publicly-owned firm.
I certainly didn't say I approved of these legal obligations, just that they existed, and that your not liking them didn't change a thing.
Please refrain from confusing stating something, and approving of it. I acutally don't approve, but denying the facts will not change anything.
And if you don't like me stating it, you only need to read Yang's letter. Do you think he likes the idea of selling his baby to his arch-ennemy? Not one bit. And yet, he acknowledges in his letter that the only thing he can do is fight for maximising his owner's revenues. If he had even the smallest Right to not do so, don't you think he would be more direct to Steve and would tell him exactly what he can do with his offer for the rest of eternity?
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