Yahoo's Position Is Sucky, Its Options Even Worse

For mergers and acquisitions lawyers, the January 31 letter that Microsoft C.E.O. Steven Ballmer sent to Yahoo's board—an unsolicited offer to buy the company for $44.6 billion, a 62 percent premium—was the first step of a very carefully choreographed dance.

Ballmer's offer, a "bear hug" in M&A parlance, was the first step. The letter ended with a mix of conviviality and (not so) veiled threat that suggests what might come next.

"My leadership team and I would be happy to make ourselves available to meet with you and your board at your earliest convenience," he writes. "Depending upon the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure Yahoo shareholders are provided with the opportunity to realize the value inherent in our proposal."
Translation: Let's have a proxy fight!

If the Yahoo board digs in its heels, reject Microsoft's offer, and resorts to its "poison pill"—an antitakeover maneuver to dilute the value of a hostile bidder's stake in the company—Microsoft's next shot would be to file a tender offer and nominate a new slate of independent directors. This is otherwise known as throwing the bums out.

Under Yahoo's bylaws, the notice for such a proposal and new slate of directors must be issued by March 13—enough time for the Yahoo directors to consider Microsoft's offer, while each side burns through some very high-priced legal advice, and Microsoft heads toward a possible proxy fight.

But if, let's pretend, you are Jerry Yang, Yahoo's CEO, you might be rethinking the company's approach to corporate governance at this moment. For you see, Yahoo does not have a "staggered" board, so every director will stand for re-election—and could be voted out—at the next annual meeting. (The date of the 2008 meeting has not yet been set. The 2007 meeting was in June.)

In other words, should Microsoft succeed in winning over the hearts and wallets of Yahoo's biggest shareholders, the deal would be done almost regardless of what Yahoo's founders or current directors think.

http://www.portfolio.com/news-markets/top-5/2008/02/05/Yahoos-Legal-Options-
With-Microsoft