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Investors Thrash Yahoo Stock After Microsoft Pulls Offer

Posted on: Tuesday, 6 May 2008, 06:00 CDT

By Jon Swartz

SAN FRANCISCO -- Yahoo is convinced it did the right thing in staving off Microsoft's takeover. But investors emphatically disagreed Monday, sending Yahoo stock plunging 15%.

The sell-off came after Yahoo spurned Microsoft's sweetened $47.5 billion offer on Saturday, leading Microsoft to drop its bid.

Now, the klieg lights are on Yahoo CEO Jerry Yang who -- along with the Yahoo board -- wanted a better deal. Yang must come up with a winning long-term business plan or face a shareholder revolt and employee exodus.

"We have a clear path ahead and momentum to build on," Yang said Sunday in a blog item titled "OK, so now what?"

But analysts such as Charlene Li, of Forrester Research, say Yahoo's strategy of establishing an advertising platform for the Web, while sound, has been muddled because of poor communication and tactical missteps.

Yahoo's recovery plan is paramount. In April, it reported first-quarter results that, Yang says, "reinforced our board's position that Microsoft's offer undervalued our unique global franchise."

The company is expected to finalize an agreement soon to outsource its search advertising to Google, which could bring Yahoo hundreds of millions of dollars in additional revenue annually.

But the long-term consequences for Yahoo could be costly. Yahoo executives have long eschewed such an arrangement with the understanding that Yahoo's competitive edge lay in providing both text-based search ads and display advertising.

Even Microsoft CEO Steve Ballmer, in a letter announcing its withdrawal, said Yahoo's deal with Google undermines "Yahoo's own strategy and long-term viability by encouraging advertisers to use Google" as opposed to Yahoo's own paid search system, called Panama.

Microsoft is expected to raise more objections about a Yahoo-Google deal for antitrust reasons, says Sid Parakh, an analyst at McAdams Wright Ragen.

A merger with Time Warner's AOL unit is also a possibility.

Still, investors may hold Yang personally responsible for diminishing share prices. He has long fought for Yahoo's independence. Yahoo's shares tumbled $4.30 to $24.37 Monday.

"There is a large portion of Yahoo's shareholder base that is under water," says Brenon Daly, an analyst at The 451 Group. "There is tremendous pressure on Yang to deliver value to Yahoo's stock. And he hasn't done that since he took over as CEO last year."

It's a risk Yang is willing to take. "We've emerged a stronger, more focused company with an even greater sense of purpose," he said in his blog. (c) Copyright 2008 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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