Did Yahoo’s Flirtation with Google Constitute a Poison Pill?
With Saturday’s news that Microsoft is withdrawing its bid for Yahoo! — Microsoft had reportedly been willing to raise its offer for to $33 a share, or about $47.5 billion, but Yahoo demanded at least $37 a share — it appears that the four-month courtship is finally over, at least for now.
But that’s business. What happened to the deal on the legal end of things? Over at Business Associations Blog, UCLA prof Stephen Bainbridge takes a look at Yahoo’s threat to outsource search to Google, and whether the threat of a strategic partnership with Google constituted a valid poison pill under corporate law. In a letter from Microsoft CEO Steve Ballmer (pictured, left) to Yahoo CEO Jerry Yang (pictured, right) withdrawing the offer, Ballmer wrote:
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such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons . . . . it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system . . . . [and] consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
Given Ballmer’s concerns over the prospect of a Yahoo-Google partnership, Professor Bainbridge asks how the Delaware courts would have analyzed the case if Microsoft had sued to block Yahoo from taking such a step. “Presumably Unocal would have been the standard of review. . . ,” Bainbridge writes. The Unocal decision, as all M&A junkies know, addresses the validity of defensive mechanisms, which are provisions the parties embed in a deal to keep it from falling apart. Under Unocal, if a court finds that a provision does, in fact, qualify as a “defensive mechanism,” then it applies a heightened standard of scrutiny to the deal.
So, would the strategic partnership fly under Unocal? Bainbridge says it’s not a sure thing. “Although the Delaware Supreme Court [has held] that a board need not abandon its long-term business plan just because a hostile bid has been made, it’s not at all clear to me that Yahoo’s effort to outsource search would qualify as such a plan for purposes of an Unocal analysis. Yahoo would have to show that it was a pre-existing part of a long-term strategic plan.”
LB’ers: We know there are a lot of 2L’s out there getting ready to face down their corporations exam this week and next. We also know that professors love to convert headlines into exam fact-patterns. So give us your A+ answer. And best of luck on the test!
Yahoo does not have a monoply on advertising, and Yang needs to let go. He should put his shareholders FIRST instead of himself.
The reports on CNBC is that the Yahoo board told Yang the # was $37, and then over the weekend he got on a plane and met with MS and told them that regardless of the fact that the Yahoo Board wants $37, that they would take no less than $38.
Nice. What clowns. Meanwhile, yahoo is now at $22 and headed south. The same brilliant negotiating that has led the MS deal is evident in the overall leadership of Yahoo.
You can answer it both ways depending on whether it fits the long term strategy. I don’t think it per se has to have been part of the preexisting strategy, although that would be a good fact.
It may depend on whether a foresight or hypothetical hindsight analysis is applied. Will the combined companies, in the future, be as large as they’d be kept separate. Then, would Yahoo shedding ’search’ leave the separate companies lesser in sum than having the companies combined.
Unocal likely would have applied. However, the question is not, necessarily, whether such a sale to Google constituted a part of any long-term strategic plan. Yahoo could have also argued that such a sale was reasonably calculated to enhance SH value, beyond what the MSFT deal offered. Once the Directors showed the Court that they had arrived at this decision in good faith and with adequate information, the mechanics and potential value of the sale would be considered a matter of business judgment and be assessed under the business judgment rule. In other words, unless MSFT could demonstrate that the Google-sale was totally and clearly an inferior option for shareholders, the Yahoo Board would be in the clear.
get off you high horse and sell. Only people you hurt are you shareholders with your ego and hate for microsoft.
how long will it take yahoo to get anywhere near the offer price. Nice going Yang chung
hahah. Look these guys view Mcrosoft as the antichrist. They will do what ever it takes to make terms so unacceptable that the proposal fails. $37 is ridiculous. Yang, you Dung stinks like everyone elses. the raised bid was reasonable. Look at where you are now?
Unocal extends to suggested proposals to deter a hostile bid? How would an injunction against a Yahoo-Google deal be ripe for decision?
Yahoo has failed. This was their one bailout chance. Their stock will continue to decline until they finally go under, due to the complete incompetency of their management.
Google uber alles.
So much for those May YHOO 30 calls.
buhahahah
I’d have to admit i do more through google than anything else. Yahoo just gives me headline news…I never saw the value, don’t care about their adds
Don’t read too much into Microsoft’s decision.
Might CEO Steve Ballmer simply come to his $$ senses?
The Yahoo! explanation point begs the question: Is Yahoo! worth $33 per share?
Takeover talk well served investors by giving a look behind the curtain in Silcon Valley’s own Land of Oz!
Look ladies and gents, Ballmer would have had NO SUCCESS had it attempted to enjoin yahoo’s threat! Obviously we’re not in revlon land, so unocal/unitrin controls. Was the google outsourcing threat preclusive/coercive? The technical anaswer is that whether or not yahoo partnered with google, a deal between yahoo and microsoft was still feasible. In practice, Microsoft might not want any part of yahoo after that, but remember the cour’s focus in Time v. Paramount was on technical feasiblity. But more imporantly, we must remember the whole google thing was at that point only a threat. A threat by itself is neither coercive/ preclusive, particluarly when Yahoo is using it to bring about a friednly merger on terms more favorable to shareholdesrs (rather than merely pushing the acquiror away). Within the range of reasonableness? No question. If I’m not mistaken, Yahoo did manage to wrench out an extra few bucks with its tactics.
We as shareholders need to 1) get Ballmer back, 2) shut Yang down, and 3) get a deal done at 34-35. Will someone please organize? You have my unconditional support.
what firms handle these guys?
Jerry is a tipical Farmer Market negotiator. This is an about 50b deal by wall street standards. A couple of dollars more may mean something to himself or his shareholders but not to a deal of such size. I don’t think Jerry handle the matter in a professional way. MS doled out the offer at the right time when YHOO price at recent low. If Jerry believes MS undervalued YH he should try to make his share price stay high. I still think MS has other chance but not at 33 but rather at 10 because Jerry over valued YH too much. In about a year or two, YH shareholdors will feel happy to be sold at 10,
Let’s bid down YH and see the result.
Bad move by Yang. Yahoo needed this deal more than Microsoft did. MS offered $5B more over the weekend but like a bad poker player, Yang wanted $10B and no less. Well, MS called his bluff. Now yahoo is worth $23 instead of $37, they’ed lost much of their workforce, and Yang looks like an over-greedy CEO who just blew it!
So what makes yahoo sooo unique?
Yang and Yahoo blew this buyout offer big time! 33 was a great offer and they should have taken it. This case study will be studied in graduate business classes for decades in how to not mess up a terrific buyout offer. I still think the deal will get done in the next 12 months but at a price of between 27 and 31. Yahoo needs Microsoft more than the other way around.
I use AdBlocker so that I don’t have to be bothered by pesky advertising. That is the real threat that Microsoft, Google and Yahoo should be pondering. When Web users get tired of advertising they’ll just block it like I do.
That was a once in a life time opportunity they won’t get that high of an offer again
Yang and his partners created this company. What right do investors, who put nothing of their own intellectual property into this company have a right to say how it should be managed. I really object to the opportunists who think they have some rights in how the Yahoo founders decide to cash in. I support the Yahoo decision.
LOL @ Van Deusen!
The *owners of a company don’t have the *right??
Get a grip!
@Van Deusen
Yes, the Yahoo founders have the right to decide how to cash in. And they exercised those rights WHEN THEY SOLD THE COMPANY TO THE PUBLIC years ago.
@Van Deusen
I totally agree that it is perfectly fine for the founders of a company to have the right to control/manage their company. Absolutely. But then, stay private. When you do go public and own less than 50%, then you do give up that right.
