“The problem is: What can she bid on that would be great? Facebook, Google, Apple can all outbid her.”
That was Chegg (CHGG) CEO, and former Yahoo COO, Dan Rosensweig speaking earlier today on CNBC about the challenges Yahoo (YHOO) CEO Marissa Mayer faces in using its Alibaba (BABA) windfall to make a transformative acquisition.
From a financial standpoint, Rozensweig is mostly on the money. Yahoo has around $10.3 billion in cash following the Alibaba IPO, compared to Apple’s (AAPL) $13.8 billion and Google’s (GOOG) $13.5 billion. Yahoo does best Facebook’s (FB) $9 billion in cash, but is valued so much lower ($46b market cap vs. $211b) that it can’t offer nearly the same amount of equity. And, both Apple and Google have market caps even higher than Facebook.
But I don’t entirely agree with Rozensweig that Marissa Mayer must relegate herself to second banana when it comes to potential M&A. Instead, she must convince Yahoo’s board to give her the type of leeway that Mark Zuckerberg has at Facebook, and then mimic his M&A strategy.
Here’s what I mean: Zuckerberg does not have a big tent when it comes to big acquisitions. Instead, he mostly seems to keep his own counsel and negotiate directly with the target company’s CEO (often over a long walk). By intentionally sidestepping all of the corp dev and legal folks, Zuckerberg not only speeds up the process, but he also lowers the probability of leaks.
That’s why none of Facebook’s three largest acquisitions — WhatsApp, Oculus and Instagram — were sniffed out by reporters before the official announcement. And when an M&A process is quick and quiet, it is more likely to get done without competition. Just ask Yahoo about its (ultimately-successful) pursuit of Tumblr, which nearly was derailed by Facebook after news leaked of the ongoing negotiations.
To be sure, Mayer does not have the same structural clout at Yahoo that Zuckerberg has at Facebook. She is not the company’s founder, nor does she control anywhere near a majority of voting stock. But if the board really still believes in her vision for the company, then it should give her a defined checkbook and the flexibility to negotiate without interference. Obviously the board would have to approve any deal, per fiduciary duty, but any requirement that she keep it informed of her prior progress only would make it harder for her to prove Rosensweig wrong.
Yahoo can still compete for big deals. But only if it gets out of its own way.
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