Tug-of-war is usually a game of two sides, but in the case of Yahoo YHOO, one can clearly identify at least three. The reason I call these opposing sides is because there are some obvious conflicts of interest. So let’s take a closer look:
The Question of Marissa Mayer
The Yahoo CEO of around four years would definitely like to keep running the company. She’s said as much when interviewed about the future of Yahoo, but the question here is, how bad does she want it? If you consider that she was willing to get outside directors to fill the two vacant positions rather than allow her opposition, Starboard, to fill them, it appears that she wants it a whole lot. She also appears to have the support of the existing board.
Given the bad press she has accumulated because of the failed acquisitions and Starboard breathing down her neck, her options are very limited. Her best hope is support from private equity that is willing to pay a good price for shareholders. They could perhaps be persuaded if she agrees to become a major investor herself.
So Mayer’s conflict is with anyone who might want to remove her, which could be any acquirer, including private equity, investors and certainly Starboard.
The Question of Starboard
The activist investor has very publicly lambasted Mayer and the board for mismanagement and now, the failure to present a transparent picture of the business so interested buyers can place bids.
There are rumors that the business is worth $6-8 billion, while the board would like $10 billion, leading to a kind of stalemate in negotiations.
Since there are currently no vacancies in the board, Starboard can’t push its agenda to better evaluate the business unless it is able to displace its members.
So Starboard’s main conflict is with Mayer and the board.
The Question of Verizon
The telecom giant Verizon VZ has been singled out mainly because its CEO Fran Shammo has been quite vocal about his interest in Yahoo, and it has also been reported in the media that Tim Armstrong, who heads the AOL unit that Verizon recently acquired, has been put in charge of the matter.
But this doesn’t mean that other telecom companies like AT&T T and Comcast CMCSA don’t have a similar interest.
That interest would be: first, access to Yahoo’s user base; second, the ability to offer differentiated bundles comprising both services and content; and third, a supplemental revenue source in the form of ads. In combination, these factors could result in an attractive value proposition for customers.
The digital advertising market is, however, fiercely competitive and Yahoo in particular has a search deal with Microsoft MSFT that has been valuable for the software company. An acquisition of Yahoo would also, in all probability, entail the removal of Mayer.
Therefore, Verizon’s interests are in conflict with both Mayer and Microsoft.
The Question of Microsoft
It has been recently reported in the media that Microsoft may back private equity in the event of a takeover of Yahoo’s assets. Microsoft is rumored to be interested only to the extent that the search deal doesn’t change to its detriment.
This means that Microsoft’s interest is in conflict with the telecoms and particularly Verizon. It may not be against Starboard unless things move in favor of the telecoms. It also may not be against Mayer if she continues with the agreement.
Bottom Line
At this point, the interested parties could be private equity + Mayer, or private equity + Mayer + Microsoft, or private equity + Microsoft, or Verizon, or any of the other telecoms.
The best deal for shareholders is of course the highest bid, and this will be what the proxy fight will boil down to.
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