Tuesday, July 22, 2008

Carl Icahn's Untakeover of Yahoo Vindicates Dog Owners

Dog owners everywhere can take satisfaction from the latest in the Yahoo-Icahn-Microsoft saga. Icahn, an acerbic critic of Yahoo’s board of directors and management, has now decided to join them. He and two pals will become members of an expanded Yahoo board. This, after Legg Mason Capital Management, a major Yahoo shareholder, announced that it would back the current board, and not Icahn, at the upcoming shareholders meeting. Icahn was probably counting on major institutional shareholders like Legg Mason to support him in the proxy contest. However, even though they likely haven’t been thrilled by the performance of Yahoo’s current management and board, the big institutional shareholders didn’t all flock to Icahn’s banner.

Icahn’s impending election to the board leaves his erstwhile semi-ally, Microsoft, in the lurch. As a dissident shareholder, Icahn increased Microsoft's negotiating leverage to buy some or all of Yahoo. His joining the board means the proxy contest he threatened won't happen, and Microsoft will have to think harder about how much it's willing to pay for some or all of Yahoo. Since its feet were getting rather cool anyway, the likelihood of a deal between Microsoft and Yahoo has grown ever more faint.

Icahn's agreement to join Yahoo’s board may be the smartest move he’s made here. If Yahoo stock has any potential for outsized performance in the future, it will come not from a battle between dissident shareholders and the current management and board. It will come from the company figuring out where the herd-like behavior of heavy users of the Internet is likely to go next, and capitalizing on the stampede. That's where Internet companies have made big money.

T. Boone Pickens, another corporate raider of Icahn’s vintage, may have been left somewhat in the dust by Icahn’s entente with Yahoo. Pickens bought a significant stake in Yahoo when Icahn emerged as a dissident shareholder. Boone may have been hoping for the kind of quick payoff that Icahn often engineered in years past. But years past are years past. In today’s stock market, companies tend to be fully valued. The takeover game of the 1980s was premised on companies being seriously undervalued, with much hidden value that could be made to blossom if a noisy shareholder slapped management around a bit. Hidden value is harder to find today, except maybe for well-capitalized companies holding lots of Euros. For the corporate raiders of yore, the fast money in the takeover game was made a long time ago.

Icahn, Microsoft, Pickens and perhaps others have once again learned the timeless lesson of Wall Street: if you want a friend, get a dog. Put another way, in the financial district, money talks and bull chips walk. Yahoo’s shareholders may benefit from all this in the long term. Icahn will be yanking chains behind the scenes, and he’s a chain yanker par excellence. Yahoo’s story isn’t over. But the attempted takeover of Yahoo is over.

No comments: