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February 15, 2008 9:24 AM
Posted by Benjamin J. Romano
Yahoo's board of directors could be starting to fragment, if a report in today's New York Post is to be believed. A faction, including new Chairman Roy Bostock and billionaire Ron Burkle, is emerging in opposition to another group sympathetic to co-founder and CEO Jerry Yang's desire to fight off the Microsoft bid, the Post reported this morning, quoting "one source close to the situation."
"The emotional part of Yang would rather do anything but sell to Microsoft, but he doesn't have the cards to come up with a value-creating, competitive alternative for shareholders," the source said.
The Post writes that the Bostock contingent "is worried that the Yang group might act out of emotion rather than their fiduciary duty, thereby exposing the board to shareholder lawsuits."
I discussed Microsoft's options for pressing ahead, after the Yahoo board rejected the initial $44.6 billion offer on Monday, with Richard Rafferty, a corporate and securities lawyer with Dallas-based Strasburger & Price. Here's a relevant part of our talk that didn't make the print story:
Among other widely reported options, Rafferty suggested Microsoft could try to persuade Yahoo board members individually.
"I hate to say this, but Microsoft could take a divide and conquer-type approach," he said, adding at the time that this was not a likely approach. "There's nothing that keeps them from contacting individual directors. They don't have to talk to the whole board."
He added that if those board members are well advised, they will refuse to talk individually and channel all communications through Yang. "Now, that won't stop the phone calls," he said.
It's also interesting that the Post's tipster references concern about "exposing the board to shareholder lawsuits," some of which have already emerged.
University of Washington finance professor Jarrad Harford, discussed his research into company directors at acquisition targets. I explained it in some detail here, but in a nutshell:
If directors do the right thing -- or the thing that is perceived to be in the best interest of shareholders -- they will be rewarded in the long run. "If your company has been doing badly and you accept a takeover bid, then you will be asked on to other boards," he said.
This typically holds true for directors at firms that have been doing poorly under the current management and board, he said. The converse is also true, his research showed.
So if Yahoo's board ultimately rejects Microsoft's offer?
"Basically, they would be less likely to be invited onto other boards in the future," he said.
What might come next?
Sid Parakh, analyst at McAdams Wright Ragen, said Thursday night he expects Microsoft to wait for the details of the reported negotiations between Yahoo and News Corp. to emerge before making its next move.
"They'd want to wait and see what the other deal is before they go out and raise the offer, if they have to," he said.
He sees no reason for Microsoft to rush ahead, especially with the ongoing debate among shareholders, and now, perhaps the Yahoo board members themselves -- who rejected the deal "unanimously."
"If Microsoft does not say anything from now to the next, say, two weeks, and meanwhile Yahoo is unable to do anything by itself ... shareholders are going to pressure the Yahoo board because no other alternatives are left," Parakh said.
Of course, it's Friday. So I'm expecting some news right about the time I head out to my dinner reservations.
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Bill Gates, who last week ended his full-time involvement with Microsoft, was often right. He made a career, a company and an industry by looking over the horizon.