Carl Icahn might well have a better chance of bringing Yahoo and Microsoft together than Steve Ballmer ever had of doing it on his own.
That’s the message the Yahoo stock price has been screaming. With the activist investor mounting a proxy fight, Yahoo’s shares now actually stand higher than they did on several days when Microsoft was still pursuing its unsolicited bid.
Is this rational? Two things suggest it may be.
One is that it took Microsoft to drop its takeover offer for some of Yahoo’s biggest shareholders to show their hand. Remember that Bill Miller, who controls 6 per cent of the stock, had been publicly calling on Microsoft to pay $40 a share: once Steve Ballmer balked, Miller’s comments suggested he’d have taken $34 after all. Gordon Crawford, also with 6 per cent, said something similar.
This is valuable information to an investor like Icahn. Potential sellers don’t normally put their cards on the table quite so publicly.
The other reason to believe a deal has a better chance with Icahn on the scene is his track record in oiling the wheels of difficult negotiations. Exhibit One is the resolution of Oracle’s bid for BEA Systems earlier this year. With BEA publicly holding out for $21 a share, Oracle actually walked away from its offer of $17 a share: the deal (with Icahn acting as broker) eventually got done behind the scenes at $19.375. This was a bigger gap to overcome than the difference between Microsoft and Yahoo, as one investor in takeover stocks points out.
The big risk for the hedge funds that have been piling into Yahoo’s shares this week is that Microsoft can’t be brought back to the negotiating table. Having wasted three months and considerable credibility already, though, it seems almost unimaginable that Ballmer wouldn’t come back - at the right price.
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