Isn't Yahoo! Management Supposed To Work For Its Shareholders?
from the that's-what-I-thought dept
I’ve been puzzled by a lot of the coverage of the Microsoft-Yahoo merger talks. Take yesterday’s write-up of the story in the New York Times, for example. The article starts off talking about Yahoo!’s efforts to “avoid defeat in its battle with Microsoft.” If I were a Yahoo! shareholder, I’d be pretty unhappy that things are being framed that way. Yahoo! management has a fiduciary responsibility to me, the shareholder, to maximize the value of my investment. Yahoo! management ought to be excited by the idea of a deal where shareholders get paid a big premium for their shares. Of course, if Yahoo! can get an even better offer from another company, or use the threat of going elsewhere to get a bigger offer from Microsoft, that would be great. But the types of machinations described in this article sound more like Yahoo! management trying to hold onto their jobs than anything else. It’s hard to see how shareholders benefit from delaying the shareholders meeting in order to prevent Microsoft from starting a proxy fight. If shareholders don’t think Microsoft’s offer is fair, they’re free to vote it down. Likewise, a deal with News Corp or AOL might make business sense, but unless it causes the price of Yahoo! shares to rise higher than Microsoft’s current offer, it’s not clear why those deals would cause shareholders to reject the Microsoft deal. More generally, I think it’s misguided to describe this type of negotiation as a battle to be won or lost by Yahoo! “Losing” in this case means Yahoo! shareholders get paid a big premium for their stock shares, while “winning” would, I guess, mean the deal falls through and Yahoo! shareholders don’t get a big payday. That seems backwards to me.
Filed Under: fiduciary responsibility, mergers
Companies: microsoft, yahoo
Comments on “Isn't Yahoo! Management Supposed To Work For Its Shareholders?”
It’s been a long time, but as far as I remember management only has a duty to the board. Of course the board has a duty to the stock holders.
I seem to remember a case from law school where a stock holder sued management for not bringing an alleged problem directly to their attention when it was pretty clear the board was not looking out for the stock holders’ best interests.
The court held that the management had no duty to inform the stock holders of anything and that the management’s notice to the board, no matter how corrupt the board was, ended the management’s duty.
Investment or arbitrage?
Yahoo! management has a fiduciary responsibility to me, the shareholder, to maximize the value of my investment.
Fuck you. You may be a stockholder but you are clearly not an investor. Yahoo seems to be about the only company interested in the long-term health of the company and its employees. Since the 1980s stockholders ceased to be “investors” and became nothing more than arbitragers willing to sacrifice the health of the company, the community (rarely their own) and in the long term, the country, all just to net an additional 1/10 cent per share.
I’m a capitalist not an anarcho-socialist anti-globalisation weenie. I’ve studied economics and thanks to a bad marriage know exactly how stocks and funds work. Hell, I wrote some of the doublespeak speeches my ex- used to give at investor meetings. The reason there are so many peope who now hate companies is that the companies truly don’t give a damn about them anymore. They only listen to the arbitragers who bought a 1.5% bloc of stock yesterday in the hope of selling it to someone else next week for an extra penny a share, netting them a cool ten mill for doing absolutely nothing. That’s arbitrage, not investment, and if more companies took Yahoo’s lead they’d see (the intangible, non-accountable, non-purchasable but extremely valuable) worker loyalty skyrocket.
Re: Investment or arbitrage?
I have to agree with ReallyEvilCanine here. Are you saying that whenever there is an offer to buy a company, and there is a “big payoff” for the shareholders, they should be forced to sell? Yes the purpose of business is to make money, but which takes precedence? Quick, short-term pay-off? Or, longer distributed (potential) financial gains?
Sounds like a fast-track to an oligopoly, and I don’t think we need any help in that department.
Re: Re: Investment or arbitrage?
I have to agree with ReallyEvilCanine here. Are you saying that whenever there is an offer to buy a company, and there is a “big payoff” for the shareholders, they should be forced to sell? Yes the purpose of business is to make money, but which takes precedence? Quick, short-term pay-off? Or, longer distributed (potential) financial gains?
Which takes precedence, long-term or short-term? Well, I guess that’s up the shareholders to decide, isn’t it? If a majority of them feel that the short-term offer is better than the long-term potential, then they sell and Yahoo goes to Microsoft. If the reverse is true then Microsoft either gives up or raises their offer. What’s wrong with that?
Re: Investment or arbitrage?
The reason there are so many peope who now hate companies is that the companies truly don’t give a damn about them anymore. They only listen to the arbitragers who bought a 1.5% bloc of stock yesterday in the hope of selling it to someone else next week for an extra penny a share, netting them a cool ten mill for doing absolutely nothing. That’s arbitrage, not investment, and if more companies took Yahoo’s lead they’d see (the intangible, non-accountable, non-purchasable but extremely valuable) worker loyalty skyrocket.
Be that as it may, Yahoo is a publicly traded company. The benefit of running a publicly traded company is that you can sell small pieces of ownership to the general public and raise ridiculous amounts of cash. The detriment of running a publicly traded company is that you now have potentially millions of shareholders who may have a different opinion of your company and it’s future than you do. And since they’re shareholders, they get a say in how things are done.
You may not like it, but that’s the rules of the game. And the Yahoos knew it when they filed their IPO. It’s time to pay the piper.
"a deal with News Corp or AOL might make business
I can see how a deal with News Corp would make business sense but not AOL
Microsoft architecture chief 'clarifies' online fo
Looks like El Reg has the scoop- Ray Ozzie speaks about the vision. Sounds very interesting.
http://www.regdeveloper.co.uk/2008/03/05/ozzie_microsoft_services/
@ReallyEvilCanine
reading your comment I think I know why your wife is your exwife.
Re: Re:
Wick3d burn
for once, I disagree
It was not in the company’s interest to be purchased by Microsoft from a long term perspective. They mentioned this and it is easily defended by the board stating that it is in the company’s interest that they refuse.
They are 2 diametrically separate companies that would not merge smoothly. Their software and platform is not well integrated (competing,similar, and unrelated services in one bunch) and MS would have to take out a loan just to purchase them. From a financial perspective, that is commonly a bad decision to go that far over your assets (percentage wise).
The only other gamble is if Microsoft allows Yahoo to maintain control and is in essence just refreshing their budget on a gamble…but seeing as yahoo is going down (and further down) they are not going to leapfrog back on search dominance anytime soon, if ever.
Just because someone wants to give you money to buy your company out (and proceed to destroy it afterwards) does not mean that it is a good business decision on any level whatsoever. I seem to recall someone who just got bought out by MS (so of course biased) going “I see no problem with this situation whatsoever”…well gee, you got handed a wad of money, you think you’d have any objection? Of course not.
What people need to be paying more attention to is who submitted the proposal to wipe the board of directors out, because Microsft is probably the one doing so themselves (if they have stock they can submit a proposal and whatnot – this is not something I have factual proof but I have a hunch).
See, a board may be a board full of old people who hate change, but that doesn’t mean the next in line is a great contender either.
Re: for once, I disagree
If Microsoft buys out Yahoo’s shareholders and then proceeds to drive the company into the ground, that’s Microsoft’s problem. The won’t hurt the (former) shareholders because they’ll no longer be the owners of the company.
Re: Re: for once, I disagree
If Microsoft buys out Yahoo’s shareholders and then proceeds to drive the company into the ground, that’s Microsoft’s problem. The won’t hurt the (former) shareholders because they’ll no longer be the owners of the company.
Hey Tim, I might disagree with you a bit on this too… If there’s a better long term option that will make my shares more valuable over the long term than selling out to Microsoft now, isn’t that a reasonable stance?
i.e., if Yahoo really thinks that either going it alone or doing a deal with one of these other providers means that the value of your shares will be worth much more a year, or five years down the road… is that not a reasonable strategy?
Re: Re: Re: for once, I disagree
Hey Tim, I might disagree with you a bit on this too… If there’s a better long term option that will make my shares more valuable over the long term than selling out to Microsoft now, isn’t that a reasonable stance?
It is a very reasonable stance. But it’s up to the ownership (shareholders) to decide just how reasonable the stance is, and whether they want to roll the dice on a future plan or take the offer that is a known quantity today with a significant upside.
Re: Re: Re:2 for once, I disagree
If they don’t like it, they CAN sell on their own, you know.
Re: Re: Re: for once, I disagree
Mike, the thing is that the current share price is the best yardstick for a company’s long-term profit potential. If shares are trading at $20, that means that (roughly speaking) that’s what the company’s long-term profits are likely to be worth. Now it’s always possible that the market is wrong and Yahoo! has a lot more profit potential than people think. It’s also possible that the market is wrong in the other direction and Yahoo! shares are over-valued. But either way the point remains: if the price MS is offering is above the fair market price for the company (however you want to compute that) then it’s in the investors’ interest to take the money, even if they think Microsoft is going to subsequently screw things up.
More to the point, Kevin’s right: it’s the shareholders’ money, and they should be given the opportunity to vote on it.
Re: Re: Re:2 for once, I disagree
The shareholders can sell independently. Further, you’ve forgotten the effects of inflation. Further you’ve forgotten the tangle of cause and effect that this merger would set off, which MIGHT make the US dollars in question worth about as much as German curracy was shortly after WW1. Or it might lead to a new golden age. Or who knows, but it’s important to remember that it exists.
Re: Re: for once, I disagree
But a company is more then just the shareholders. The product is important too. Read other articles on THIS DAMNED BLOG! about how the content is important. Also, tell me, is it fiscally better to take a lump sum now, or greater returns over a much longer time period?
Stakeholders not shareholders
A common mistake but Yahoo’s board has a responsibility to stakeholders, not just shareholders. A company’s stakeholders typically include shareholders, employees, clients, suppliers, creditors, and management. Striking the proper balance is a hard thing to do sometimes, and in this case Yahoo seems to believe that it holds its non-shareholder value in the long-term as being greater then just its shareholder’s immediate profits. It is a risk that you will drive down your company worth by alienating those looking for a quick return. But there are a lot of people/firms who invest for the long-term who are interested in ‘healthy’ stable growth too.
Either direction you choose, you upset someone.
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Oh come on. We all know what the rule of business is in today’s world. Maximum profit at any cost, regardless of law, ethics or morality. If Ballmer had any guts, he’d hire a small black ops group to go in and eliminate the people at Yahoo who’re dragging their feet on the merger. It would even cause Yahoo’s stock to go down, making it cheaper.
Re: Re:
Buuuut that’s the incorrect rule for economics. The correct rule is maximum profet for minimum cost. This includes several types of cost and profit with several weights. Money in inherently valueless. GOODS is where the worth is
Re: Re:
In other words, if I took a hundred from you, and gave you ten dollars, would you be happy?
Well, you profited! I mean I could have given you nothing! So you win right!? Maximum profit! Who cares that it cost $100 to make that ten?
Now, keep in mind that some things have very fuzzy values when turned into exchange units. From Yahoo’s perspective, Microsoft is giving them an equaly bum deal as I gave you.
Maximum profit, min cost. Remember that, it’ll help you more in life then maximum profit, maximum cost.
Management DOES owe a fiduciary duty to the shareholders.
Saying Yahoo’s management is breaching that duty by failing to entertain Microsoft’s bid, while probably true, is extremely difficult to prove.
Token argument: I, as part of Yahoo’s management, think that Microsoft’s bid for $10 is nice, but I believe that X, Y, and Z forthcoming developments will increase our share’s value by 500%. Thus, I am acting in the shareholder’s best interest by preventing a hostile takeover, etc.
@Nikkos
Management might owe a duty to the stakeholders (employees, etc), but they owe a fiduciary duty to the shareholders, which is the greatest duty they can have.
Re: Re:
No, the greatest duty they have is to themselves. The rules on enlightened self-interest lead to all other duties.
Re: Re:
OR their greatest duty is to the state. Or their greatest duty is to humanity as a whole. It depends on their ethics
I guess Jerry should have thought about what “going public” meant before he took Yahoo public. This guy needs a reality check.
What is being overlooked here is…
If Yahoo is acquired by Microsoft, a significant percentage of Yahoo’s employees WILL quit.
So the responsibility to the shareholders includes – dont put the company into a situation that will cause so much turmoil.
Want two more examples? MS buying Sun, or Apple. Same thing would apply. (not that they would.. but am talking about the staffing angle)
Touchingly naive
“Yahoo! management ought to be excited by the idea of a deal where shareholders get paid a big premium for their shares.”
What planet do you live on, where executives of large companies give each other high-fives when–and only when–they maximize shareholder value? You’re either the most naive “analyst” in the country, or you’re being deliberately obtuse.
To sum up all of the arguments here:
#1 Don’t try to double-guess Yahoo. A lack of profit now can mean a bigger profit later. In the current economy, the US dollar is falling.
#2 Remember that man is NOT rational. Ethics play roles, as do several other non-rational parts of the human decision making process.
#3 Rationality is overrated, or underrated. Humankind’s irrationality has rational roots that allow us to be super-rational. Super-rationality wins.
#4 Remember that there are thing with value and worth that are not money, and that without them money has no worth or value.
#5 Publicity and worker loyalty have worth but are hard to give a solid value, making them priceless.
#6 Value and profit have many meanings. Do not be limited to money.
#7 What goes around comes around, therefore by helping the stakeholders you help everyone: and help make a stronger economy for tomorrow.
To sum it up: Go back to college, and change your major, because all economics is wrong, if it leads to the conclusion you believe it does. Either action by yahoo is correct for different reasons. Yahoo believed that this action was the more correct.
Re: Re:
Now I’m going to go buy things I want through yahoo adds for a while in support
When it comes to growing the online marketplace, it seems like the merger makes sense. Oh well.
Re: Re:
Since when did growing a market mean reducing the players in it?
Re: Re: Re:
>> Since when did growing a market mean reducing the players in it?
Auto industry. Early 20th century. Economies of scale.
Re: Re: Re:
Your not looking at product offerings, current, potential or otherwise.
I just want someone to kick Google in the nuts for a reality check- how does investing in model rocketry with nasa, buying wireless spectrum, or getting into health records management improve their own product offering? Seems like they have become bored with being #1.
Really, I don’t care how the merger ends up, who does it or who sits on the side for a more formidable competitor to come to the table and push the cogs to innovate.
Re: Re: Re: Re:
Scatter shot investments occasionally payoff. Usually tangentially, that is to say they CAN occasionally improve lagging sectors of the economy, improving your own business. Also Google has a reputation that they build by the area in which they scatter shot… tech development.
And occasionally you get surprising results
Remember: NASA research is responsible for your cordless power tools.
@ReallyEvilCanine
Was your post an example of your doublespeak speeches??
Since when does a capitalist/pro-globalisation piece of sh*t care about a companies employees?? As an “investor” or “shareholder” you would want maximum return on your investment. I fail to see how that happens if Yahoo! were to go under.
Re: @ReallyEvilCanine
And who says they definably will? And who says that them being eaten by Microsoft won’t kill more of the US economy, therefore making things worse for everyone, share holds included? And who says there’s no money to be made off of them going under? If I could choose to get a dollar a day for ten years, or a hundred dollars now, I think I’d rather go with the dollar a day.
Re: @ReallyEvilCanine
Aaaaaaaand monetary return is only one, increasingly worthless, type of value. As the economy dies, this sort of deal simply gets increasingly common: And increasingly more stupid to take. Money in the hand when there’s heavy inflation is valued less then assets after heavy inflation
Dude, why would you think that?
It’s highly unlikely that the stock you’re holding is from the IPO. Which means you bought it from someone else.
In doing so, you’ve put no money into Yahoo’s coffers. Why would they give a rat’s ass about you?
The people who put the most into Yahoo are Yahoo employees. Yahoo owes *them*. The employees repay Yahoo by making something of value to Yahoo’s customers (also, not you).
The “something of value” tangentially helps you sell scraps of paper which loosely represent some tiny fictional “piece” of the company to other people who can be convinced that they’ll then be able to sell those scraps to someone else for more. (Why fictional? Liquidate the company and see the real value of your paper.)
Essentially, your stock, and any “value” it might have, are just a side effect of Yahoo’s business and mean nothing concrete to Yahoo except that they vaguely indicate the market’s perception of how good a job they’re doing at their actual business.
Just dump your Yahoo stock; they don’t need you and you’re distracting them from their real business: making something useful to a bunch of people.
the company I work for was brought out by another. This clearly was a good deal for the board but it totally tanked the existing company and the employees bore loss of work and benefits. All for a big one time payout. If the board really wants to sell out they’ll just put pawns in the management spots.
#38 Is Right
Many of you say things like:
Tell me, is it fiscally better to take a lump sum now, or greater returns over a much longer time period?
A lack of profit now can mean a bigger profit later
Yes the purpose of business is to make money, but which takes precedence? Quick, short-term pay-off?
But you all seem to fundamentally misunderstand how stock markets and decision markets work. Tim is correct here. This discussion isn’t about ethics. Actually it is. Ethics, goodwill value, future prospects, future profits…these things are all imputed into the current stock price, as best as THOUSANDS of people can guess them. That’s how the current stock price is derived.
Jerry Yang is trying to say that he is smarter than all those millions of investors who choose to buy or not buy Yahoo stock. He thinks it’s worth more, and everybody else is wrong. Granted, he may know some big secret as to why Yahoo is worth more, but if that were the case, there would be a big incentive to reveal that secret. The fact of the matter is that Yahoo’s options for the future are already integrated into the stock price. That’s what a stock price is all about, for goshsakes.
Microsoft, for their part, think that if they could buy Yahoo, then this merger would increase the value of MSFT. They are willing to pay a premium for Yahoo stock to make it happen. This deal is good for Yahoo shareholders, who should be given the opportunity to vote on it, and who should accept it. If the merger succeeds or fails, that’s a different question.
Yahoo’s price is what it is. The markets have spoken, and for once, this isn’t the case of some corporate interests rigging the markets, or getting loosely regulated monopolies and calling it a free market, this is a very democratic decision market (the stock exchange) that has set the price for Yahoo, and MSFT has said it is willing to pay the price. All of you posters that oppose this are off target: if you go to a market to sell potatoes for $5/pound, and I offer you $7/lb, do you not sell me the spuds?
The people who should be questioning this deal, are the MSFT shareholders. Any debates about whether buying Yahoo! or not is a good decision shouldn’t be taking place around the Yahoo boardroom, but rather up in Redmond. What did the markets say about MSFTs share price when they announced the deal? That’s what we should be talking about.
You don’t like it, you stay private, or at least retain a controlling share.
Re: #38 Is Right
Exactly right!
Re: Re: #38 Is Right
Thanks Tim for weighing in on this!
But I believe maybe your missing the point. The corporate entity exists under the IRS Code for one thing- to create a profit for it’s shareholders. Social issues, jobs and the like are not addressed under the IRS code. If the board is ill equipped to make a decision, and has to escalate to shareholders, it may signal to the shareholders that the BoD is divided, which may have downstream reprocussions. If the shareholders vote for a buy-out, it could signal a vote of no confidence of the current leadership.
Considering the opportunities listed in the past three weeks of press releases from Microsoft, yahoo should consider the opportunity in an emotional vacuum. Such things to consider may be potential cost, and level of effort/manpower to organically grow a similar opportunity.
I just want someone, anyone with cahones to challenge Google. If it’s MicroHoo, great. If it’s eBayApple, fantastic. But we’re at a standstill from an innovation perspective.
Re: #38 Is Right
Microsoft, for their part, think that if they could buy Yahoo, then this merger would increase the value of MSFT
Sure it would, but it would kill the value of Yahoo!. Sure, it would add a real competitor to Google, but it would inevitably be bad for the web as a whole.
Sometimes a company needs to think what’s better for its community than its pockets.
Microsoft
Yeah, Microsoft needs to own something else… Right.
Yahoo! management has a fiduciary responsibility to me, the shareholder, to maximize the value of my investment.
Yeah …. Please the shareholders or please the community? I think Yahoo! made the right choice. Not everything is about money here.
MS buying out Yahoo! would be the end to Yahoo!’s community support. I’m sorry to say, as a shareholder, bugger off. Community is more important than earning a quick buck.
I’m definitely gonna have to disagree with Tim’s views here.