All week the Microsoft (MSFT) camp has been leaking to the media that it’s on the verge of launching a hostile takeover of Yahoo (YHOO). Yet as I prepare to hit “publish” (what used to be called “going to press”), still no word. Could it be that Microsoft has realized it can’t win a proxy battle?
Consider some math. According to public filings, various entities of Capital Group own as much as 16% of Yahoo’s outstanding shares. Legg Mason (LM) owns another 6%. Founders Jerry Yang and David Filo together have kept a 10% stake all these years. Directors, top executives and various friends of Jerry and David’s own at least another 5%. That adds up to 37%. And that’s not counting the other institutions that own shares of Yahoo. That 37% alone, though, absolutely will vote against a hostile takeover attempt at $31 per Yahoo share (Microsoft’s original offer), and are highly unlikely to approve a $33 offer either.
Okay, you say, 37% does not a hostile takeover thwart. True, but consider this. Yahoo is a consumer company, and many of its shares are held by retail investors, perhaps as much as 25%. Retail investors almost never vote in proxy contests. It’s just not in their nature. Too much trouble, not enough impact, and so on. So for the sake of argument, remove that 25% from the vote count. Now that 37% of Yahoo stalwarts all of a sudden becomes 49% of the votes outstanding. There are a lot of ifs and mights and at leasts here. But the bottom line is obvious. Team Yahoo wouldn’t have to work all that hard to block a deal anywhere south of, say, $36 a share, while Team Microsoft has a huge task ahead of it to find enough votes to win.
I’ve assumed from the beginning that this deal is inevitable. I still think so, meaning that Steve Ballmer will bite down hard and come up with more money to buy Yahoo. And perhaps by the close of market my math will be proved irrelevant and Microsoft will launch an attack. Marc Andreessen wrote this morning about many of the concerns each company might be having about a deal right now. Good points all. What he’s left out is that Microsoft just maybe has realized it can’t win.