The Big Chess Game: Microsoft and Yahoo

Yesterday, word came out that Yahoo went to the Securities and Exchange Commission and negotiated a severance package for all it’s employees who have a paid salary. The deal will be taken to the share holders, and then it will be voted on whether they want to cede to Microsoft. Since Yahoo is incorporated in Delaware, there are some laws that play into this. Yahoo legally cannot interfere with a vote by it’s share holders when they decide if they want to go to Microsoft.

The Deal Book at the New York Times lists several ways Yahoo can opt out of this situation, none of which are very easy.

1. Fight it out in a proxy contest – Yahoo can state that Microsoft is undervaluing it and aren’t willing to pay enough for it to sell. This would be very entertaining because the two companies would end up appealing to consumers by running a national ad war along with mass mailings to the share holders.
2. Severance and other change of control contracts – Just in case someone bought Yahoo!, employees then terminated would covered. However, this does not go into affect if you are fired by Yahoo.
3. 3rd Party Buyout -- Someone else can buy Yahoo! However, if more than one corporation was interested, the highest price is the winner.
4. Alliance or Acquisition -- The New York Times finds this to be the best option. This is when we look to AOL, however, this has been rumored for a while and nothing has panned out.
5. Crown Jewel Sale – Yahoo can sell a part of it’s company to make the buy less appealing.
6. Leveraged Recapitalization – Yahoo buys back stocks from the share holders at a premium price. This will be very expensive. Cost is not a problem for Yahoo, if they want the company, they will buy it. This will also make the whole thing more public than it already is. Share holders will know what is going on.

We don’t know the whole story to this point. Microsoft and Yahoo could be at the negotiating table right now. Whatever way this chess game ends, it’s been fun watching the ups and downs of two companies battling head to head to keep in the technology world.