Microsoft and Yahoo

Andrew Ross Sorkin: Well right this moment, it doesn’t seem like there's a deal in the offing. You know, it's a very funny situation because either Steve Ballmer you know, is a genius or an idiot and that's really the fundamental question right now. You know, he walked away from his bid. And it was sort of the bird in the hand. It was his to lose and so far he hasn’t won. Now he would tell you he's a disciplined buyer and wasn’t willing to pay more than $33 and by walking away, frankly, he's put Yahoo in a very difficult and awkward position, because what is Yahoo to do? And I think shareholders are rather furious that they didn’t take the deal. And at 33 they would be happy to. And that's why you've seen Carl Icon, the activist investor get involved and may try to push things along.

Now Carl is in this situation because he's trying to bring Microsoft back to the table. And at least so far, Microsoft is pretending or may be in reality, doesn’t want to come back to the table. They've said, we'll come back to the table but we're not coming back to buy the entire company. We're going to do this kind of pseudo partnership, maybe buy a piece of the company and split it off and do some other things. But that doesn’t really get Carl Icon or shareholders of Yahoo where they want. And we're going to be coming up in July, to a proxy contest where Carl and others will be nominating their own slates and potentially ousting Yahoo's board.

And so there's a cloud that's hanging over Yahoo. And what Yahoo does next is the question. Do they try to entertain or bid for Microsoft, trying to bring them back to the table? Is that a better option than everyone on the board getting kicked out? And will Carl Icon prevail? I think there's a view that Carl would much prefer-- he doesn’t want to go on the board. He wants to get this company sold to Microsoft. And to the extent he can push them together before this proxy vote in July, he would have done a great thing for himself and for the shareholders.

But to the extent that he's not able to, there becomes a much larger question which is, do you actually want to vote Carl Icon on to this board? Because clearly, he's a guy who doesn’t even use a personal computer. Should he be running this company? And he's not even sure he wants to run this company. So those are the issues as they are today and we will see in the end, whether Steve Ballmer really was a genius and that he's able to buy the company for $33 or less or whether he was, whatever you want to call him, because he didn’t win and get what he wanted. And, you know, we'll have to see what happens to that.

 

Question: What is Icahn’s next step?

 

Andrew Ross Sorkin: Well his next step is a step you probably won't see necessarily in the press that with Carl, you'll see most of it. You know, his next step is really trying to work behind the scenes to try to bring Steve Ballmer to the table, to try to bring Jerry Yang to the table. And you ask what do you do behind the scenes to do that? What that really means is, calling up all of the big Yahoo shareholders and saying listen, we've got to put some pressure on Jerry Yang. That means, call the board members. Call Jerry Yang. Call everybody at Yahoo and say we're furious. Write them letters. Let them know how frustrated you are with them.

And on the other side, to really push Microsoft shareholders to say to Steve Ballmer, listen, we actually need this asset. So he's going to be working it on both sides. And to the extent that he can apply some pressure to both sides to maybe start thinking about this in a different way, maybe he can get them there. The X factor of course is Ballmer and Microsoft. In the end actually, it's not so clear it matters what Yahoo's board wants any more, because if Microsoft doesn’t want them, you know, the game is over. So that's sort of where things stand.

 

Question: Could Google come into the mix?

 

Andrew Ross Sorkin: Well that is the alternative or at least the alternative that Yahoo has been flouting, this idea that Google is going to come in and do a search partnership where you're going to see some of the search results from Google along side the Yahoo results. You know, that may be a viable proposal. The question though, is does that-- two things, does that create as much value as Microsoft's bid and I think most people on Wall Street would say it does not. And the bigger issue is, does that deal actually get done?

You have to imagine that if they were to announce a transaction like that with Google, that the regulators in Washington are going to go crazy. And frankly Microsoft is going to go crazy and they are going to have every lobbyist in town in Washington screaming and shouting from the rooftops that this is an antitrust mess. And it's going to make Google even more of a monopoly than it already is. Of course there's great irony in that Microsoft would be the one talking about monopolies. But that is the reality of what will happen probably.

 

Recorded on: June 3, 2008

 

Wait till July, says Sorkin

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