Thursday, July 17, 2008

Another letter from Yang

A succinct letter from YHOO was posted today, indicating why shareholders should vote for current board and not Icahn. Its clear on all the facts and nicely put. After reading this letter, its obvious that voting for Icahn would be a really stupid thing to do in the current scenario.

I think this thread is misguided. Yang never wanted to be CEO and was forced into that role, because Terry Semel sucked big time and had to be fired. Also they had become quite complacent and lost their sense of urgency. But now that they have been constantly pestered by MSFT, they are taking all the right decisions and seem to have fire in their bellies.

They have already signed a deal with GOOG, which can generate significant additional cash flow. Its also in GOOG's interest to have some credible competition in the form of independent YHOO, so that they don't get under the anti-trust scanner too often. The terms of GOOG deal are very good for YHOO and still leaves YHOO flexibility to consider other transactions. In this latest letter they are also talking about spinning off Asian assets.

I think Yang's win on Aug 1 is almost a given, unless they screw up big-time in their earnings, which doesn't seem likely. This may cause a short-term drop in the share price. But this will also get rid of the YHOO employees who are simply hanging on to make some bucks out of MSFT deal. Short-term holders who bought simply to ride Icahn's coat-tails will also bail out at that point. I think that would be an opportunity to get into YHOO at a reasonable risk-reward valuation (under $20). In another year's timeframe, MSFT will be really desperate for growth and will end up having to pay the valuation guarantees that YHOO is asking for and MSFT has balked at so far. They really don't have any other hope of gaining a foothold against GOOG.


Fernando Alvarez said...

Rav, what do you think of the market action on yhoo after these new developments? I thought the market would have punished it more by now.

Fernando Alvarez said...

Scratch that. Its working its way down.