mobile-bannertablet-bannerdesktop-banner

Yahoo buyer must fire board

Dec 01, 2011

Dear private equity firms thinking about buying (at least part) of Yahoo,

I'm sure you have all sorts of good reasons for wanting to catch one of the Internet's sharpest falling knives. Maybe you believe that Yahoo (yhoo)  has become much too scattered, and believe it needs to refocus around its mail, content and/or commerce businesses. Maybe you believe it hasn't been scattered enough, and needs to go on an acquisition spree. Maybe you just want to be known for trying to turn around what was once a great brand (we'll call this the Cerberus/Chrysler prerogative).

No matter the game plan, your first order of business should be obvious: Fire Yahoo's board of directors.

Not two or three directors, as some firms reportedly are thinking. Or just the ones who might vote against your stewardship. All of 'em.

It is just not a trustworthy group. Yesterday reports began to surface that a group including by Silver Lake Partners and Micosoft (yhoo) had bid $16.50 per share to acquire a 20% stake. Then came news that TPG Capital was bidding a buck more per share for a similar amount. Finally, the NY Times suggested that Bain Capital, The Blackstone Group, Alibaba.com and Softbank all are talking with each other about a $20 per share takeout of the entire company.

Maybe I'm being hopelessly naive, but I just cannot believe that the specific pricing leaks came from any of the aforementioned firms. For example, why would Silver Lake want anyone to know it bid $16.50 per share? Not only does it hurt Silver Lake from a competitive bidding perspective, but it also could help artificially inflate the current trading price (i.e., force them to pay a premium upon a baked-in premium). Same goes for TPG or Bain or Blackstone or Alibaba.

Yahoo's board, on the other hand, does have motive. All sorts of it. And I believe that it's leaking like a sieve.

You certainly can make an argument that it's in Yahoo's best interest to drive up its sale price, which would mean that its directors are doing right by shareholders. But they also would be violating confidentiality agreements, and could hardly be trusted going forward. Unless the eventual buyer is able to determine the specific leaker(s), then everyone must go. Otherwise the knife will become much, much sharper going forward.


Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions