Sunday, May 18, 2008

Good (financial) Shtick

Ok, so I know not everyone follows business news all that closely. I don't blame you. It's pretty boring, most of the time. But the Microsoft-Yahoo soap opera has been entertaining on many levels. And something happened recently that is such good shtick (and sort of related to sports) that I felt I should bring it to people's attention.

Quick recap: Yahoo sucks. Google has been destroying them for years according to every conceivable metric - market share, financials, growth rate, etc. Yahoo's stock price (a very important thing for a public company) has been in the toilet. From around $50/share two years ago, the price sank below $20/share.

A few months ago, in steps Microsoft, who - losing money in their own online operations (internet gambling?) - decides they want to acquire Yahoo to help them take on Google. Microsoft offers $31/share, a 70% premium to the stock price prior to the offer. Yahoo shareholders, in other words, have hit the jackpot. Someone is willing to buy their piece-of-shit-($19)shares immediately for a price ($31) they have no chance of seeing for the next 5 years.

Yahoo management stonewalls the deal. They start looking around, trying to merge with AOL, trying to reach a deal with Google (!), trying to get Rupert Murdoch interested - anything but sell to Microsoft. They basically say the $31 offer is an insult, it grossly undervalues the company. Over the course of some bizarre and contentious negotiations, Microsoft ups its offer to $33, and Yahoo says it won't settle for less than $37/share. (each extra $1/share, by the way, costs Microsoft $3 billion). Microsoft's like "fuck it, we don't need this shit," and walks away.

Celebrations ensue in the Yahoo boardroom. The NYT reports that Yahoo directors and executives are, literally, high-fiving each other. Yahoo founder and CEO is quoted saying he's happy the "distraction" is behind them. The good cheer lasts for about three hours, until very, very important shareholders (mega- hedge fund moguls) start talking about how they're extremely disappointed in Yahoo management for botching the deal. There is talk of a shareholder rebellion (there really are such things, only they're democratically decided shareholder initiatives; pitchforks, regrettably, are not generally involved). Everyone expects Yahoo stock to tank on Monday to low 20s.

Only the stock doesn't tank. Well, it does for about a minute, then it just keeps going back up. Why? Well, because a rich dude named Carl Icahn has decided to buy 59 million shares of Yahoo stock (that's about $1.5 billion worth, for those scoring at home). Icahn realizes that the Microsoft offer was a sweet deal, and he figures he can threaten to or actually kick out Yahoo's board, restart negotiations with Microsoft, and make an easy 20% + on his money, likely within a year. This, in itself, is pretty good shtick. If we can somehow piece together $1.4 billion and make 20% on it, that would be very worthwhile according to my calculations.

But it gets better. As part of his initiative, Icahn compiles a list of 10 executives whom he proposes to replace Yahoo's existing board of directors. Prominently featured on this list - one Mark Cuban. That Mark Cuban? Well, yes, that Mark Cuban, the one who owns the Dallas Mavericks. The one who made his fortune...wait, how exactly did Mark Cuban make his fortune? Does anyone recall? I seem to remember it had something to do with the internet, broadcasting games on the internet? Oh, let's just go to the Wikipedia-tape:

"By 1999, Broadcast.com had grown to 330 employees and annual revenues near $100 million.[17] In 1999, during the Dot-com boom, Broadcast.com was acquired by Yahoo! for $5.9 billion in Yahoo! stock."

Wait, there's a history between Cuban and Yahoo? They've done business together before, that's great!? Nothing more satisfying than two successful business partners reuniting years after their initial glory. But, for the record, just how successful was that investment in Broadcast.com for Yahoo?

"Over the next few years Yahoo! split the services previously offered by Broadcast.com into separate services, Yahoo! Launchcast for music and Yahoo! Platinum for video entertainment. Yahoo! Platinum has since been discontinued, its functionality being offered as part of two pay services, AT&T Yahoo! High Speed Internet and Yahoo! Plus. As of 2007, neither broadcast.com nor broadcast.yahoo.com are distinct web addresses; both simply redirect to yahoo.com."

Wait, so Cuban basically sold Yahoo a pile of shit for $5.9 billion? Essentially, yes. And now, Icahn is bringing in Cuban to the Yahoo board to make sure shareholders get fair value? This is madness. It is the fox guarding the henhouse. It is kategor become sanegor. It is an invitation to the O' Malleys to come back to NY and arrange for a midnight sale of the Mets to Dunder Mifflin. Yes, my friends, it is all these things. Or, quite simply, it's just "good (financial) shtick."

1 Comments:

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