No victory: Yahoo feels the heat after Microsoft walks away

Everyone's searching for YHOO, waiting to see how low the stock can go.


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Farhad Manjoo
May 5, 2008 8:52PM (UTC)

Basictheory

Yahoo CEO Jerry Yang in a sumo outfit.

Even more so than usual, the tech world is glued to the market today, waiting to see how low Yahoo can go. Indeed, Google Trends says that YHOO, Yahoo's stock symbol, is, so far, the 28th fastest-rising search term today.

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But that's the only thing about Yahoo rising today. Its stock opened at $23.02 this morning, about 20 percent down from Friday's closing price of $28.67.

Friday was, of course, a universe away: That was before Saturday's final meeting between Jerry Yang and Steve Ballmer, Yahoo and Microsoft's CEOs, at which Ballmer refused to pay a penny over $33 per share for his takeover of Yahoo.

Yang stuck to his price, $37, and Ballmer flew back to Redmond. Ballmer could always come back -- but for now, Yahoo's got to face the consequences of its strategy.

Yang himself may be pleased with it. Citing "people close to" Yahoo, the New York Times on Sunday reported that Yang considered the outcome a "personal victory," and added that "high-fives were exchanged" among Yahoo execs when they learned of Ballmer's decision.

Yahoo employees -- whose wealth is tied up in the stock -- are surely less excited. On Jan. 31, the day before Microsoft made public its takeover offer, Yahoo's stock was trading at $19. Microsoft's first offer -- of $31 -- caused the shares to surge to $28. But now that a deal's off the table, folks at Yahoo once again face the prospect of sub-$20 shares.

Aware that he wouldn't win any support from his employees if he were seen as happy about standing in the way of a huge Microsoft-stock payday, Yang, in a post on Yahoo's company blog, denied any glee:

Frankly, there's a lot of nonsense and misinformation in what's being reported. Just so we are all clear, here's what happened. The board took its mission very seriously. We clearly indicated to Microsoft that we were open to a transaction but only if it were on terms that fully recognized the value of Yahoo! and was in the best interests of our stockholders.

No one is celebrating about the outcome of these past three months ... and no one should.

As Kara Swisher reports, though, many at Yahoo aren't buying it. Here are some quotes she pulled from distraught employees:

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"I am in shock."

"I don't know if we won or we lost. I think we lost."

"I don't love that it was Microsoft, but I think everyone thought $33 was a pretty good offer from a pretty good tech company."

"Having to face my staff tomorrow will not be so much fun and I need some Prozac, since I don't know what I can say to them about how our leadership is going to get our company going again."

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"Where's the Jelly memo when you need it?"

"I can't really talk to Jerry, since it is difficult to tell a founder tough things he probably needs to hear."

"Do you think we need to do an intervention with Jerry and the board?"

What should Yahoo do now? Many are pushing it to make permanent a search deal with Google, one that it first initiated as a way to avert the Microsoft offer.

As part of the deal Yahoo would outsource its search operations to Google -- it would get increased revenue in return for what would likely be the end of search-engine innovation at the company.

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Henry Blodget argues that this is a fine trade, because Yahoo was never going to beat Google in search anyway. Why continue to invest resources in a game that's already over? Better to spend the money in new markets that Yahoo could potentially lead.

But even a Google deal may not pacify investors. If Yahoo's stock continues to slide, Microsoft could always return with another proposal -- and this time, Ballmer wouldn't have to offer anywhere near $33.


Farhad Manjoo

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society.

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