Yahoo's Yang needs a good plan, fast
NEW YORK (Reuters) - Jerry Yang's got some explaining to do.
Come Monday, the Yahoo chief executive will face an angry chorus of shareholders asking why he failed to seal a $47.5 billion deal with Microsoft Corp for the company he helped create.
To soften the blow, he will need to show how a last-minute $5 billion sweetener from Microsoft for its unsolicited bid was not enough to overcome the risks of a deal. Microsoft ended talks on Saturday after Yahoo dug in for a higher price.
Yahoo may also accelerate efforts to find a partner that will help stimulate growth, particularly an alliance with arch-rival Google Inc.
"Yang had better be in a situation to shortly come forth with some sort of strategic alternative to explain why $31 a share wasn't enough," said David Garrity, analyst at Dinosaur Research. "There will be a certain percentage of the shareholder base itching to file lawsuits on Monday morning."
One argument the company already began to highlight in a public statement on Saturday night was that a significant number of its shareholders agreed that Microsoft should pay more than the $33 per share price it suggested in the last few days, up from an initial $31 per share.
Some large Yahoo shareholders sought a price of $35 to $37 per share in a deal, a source familiar with the matter said.
The company is also still pursuing discussions for alternatives to the Microsoft offer, including a potential tie-up with Google for Web search listings, the source said.
Neither of those moves will save Yahoo from shareholder lawsuits, but they could buy Yang some time until it becomes clear whether Microsoft CEO Steve Ballmer's decision to withdraw his offer is truly the end or a negotiating ploy.
But even on Saturday, some shareholders were showing their disbelief.
"Wow. I'm shocked Yahoo wasn't more reasonable. The stock will probably go down at least $5 on Monday," said Walter Price, a senior portfolio manager at RCM, which had 21 million Microsoft shares and 2 million Yahoo shares at the end of 2007.
WHERE'S THE GROWTH?
Yang may not take the heat alone, given the amount of backing he received from Yahoo's board to press Microsoft for a higher price. But that may mean they all get accused of bad judgment.
"I still think it's a fault of the board to let this slip away," said Martin Pyykkonen, analyst at Global Crown Capital. "I don't see where you get to justifying a $37 target on the stock on a fundamental basis."
Of more concern is the fact that Yahoo has spent three months focused on Microsoft, even as it tries to realign its own business to grapple with a loss of Web search market share and the impact of a weakened U.S. economy on its sales of online display advertising.
"To some extent they need to keep doing what they have been doing," Pyykkonen said.
Yahoo has forecast sluggish revenue growth in 2008 of 3 percent to 15 percent as an economic downturn curtails advertising in sectors like finance, retail and travel.
It has overhauled its search advertising technology with a system known as Panama and improved ways of delivering the graphic Internet ads like banners that marketers favor for brand campaigns.
A Google deal could help improve results as Yahoo utilizes some of the power of the Web search leader's technology.
But Microsoft cited the discussions between Yahoo and Google as one deterrent for it to pursue a deal, saying it would cement advertisers more firmly in Google's grip and could cost Yahoo some of its best engineering talent.
While Wall Street had already shown signs of fatigue waiting for Yahoo's own overhaul to take hold before Microsoft made its offer public in February, the withdrawal effect could be far worse now.
"Yahoo shareholders will have to suffer through many quarters of rebuilding," said Jordan Rohan, founder of Clearmeadow Partners, a digital media advisory firm.
(Additional reporting by Kenneth Li in New York and Muralikumar Anantharaman in Boston)











