Almost all of Yahoo’s main shareholders have Microsoft holdings so Yahoo’s big investors may back Microsoft.
Financial risk management analysis company RiskMetrics Group found that close to 90 percent of Yahoo’s institutional shareholders have a cross-holding in Microsoft, including most of the top 20 — and generally have significantly more money invested in Microsoft.
The two companies are at a stand-off in Microsoft’s $41.7 billion unsolicited bid to acquire Yahoo. Microsoft has offered to buy Yahoo for $31 a share in cash and stock, a bid which Yahoo’s board rejected, saying it undervalued the company.
Microsoft countered by saying that its offer was “full and fair,” but did not say what it planned to do next. Analysts expect Microsoft to sweeten its bid, possibly to $35 a share, to clinch a deal.
Yahoo shares surged on news of the bid, but Microsoft shares have fallen. Shares of Microsoft were down 11 cents to $28.39 in Friday afternoon trading on Nasdaq, down 13 percent since the offer went public.
Yahoo’s stock was down 40 cents to $29.58, representing about a 2 percent premium to Microsoft’s half-cash and half-stock offer, which indicates investors are expecting a higher bid.
A shareholder that owns both the target and an acquirer will be more interested in the net benefit of a deal, RiskMetrics said. Shareholders with more money invested in Microsoft than Yahoo will most likely urge Yahoo not to push its case too hard.
“They may be more concerned with whether Microsoft will get caught up in a ’deal frenzy’ and suffer the ’winner’s curse’ by overpaying for Yahoo,” RiskMetrics analysts wrote in an M&A Edge Note.
“We can expect shareholders who own both companies to pressure Yahoo directors to extract a material sweetener from Microsoft (which will help Yahoo directors save face) that isn’t seen to destroy the perceived benefits of the merger, prior to ... ultimately succumbing.”
Earlier this week, Yahoo’s second biggest shareholder, Legg Mason, urged Microsoft to raise its offer. In a letter to investors, Bill Miller, the star stock-picker at the U.S. asset manager, estimated that fair value for Yahoo was around $40 per share.
RiskMetrics said this was not a big surprise since Legg Mason is one of three of Yahoo’s top 20 institutional shareholders with significantly more money invested in Yahoo than Microsoft.
“Don’t expect to see many of the other top Yahoo shareholders following Bill Miller’s lead,” the report said.
If Microsoft has the money to buy Yahoo! why can't they just purchase the shares via the stock exchange? It may take more time buying it a little piece at a time but eventually couldn't Microsoft buy all the shares they want?
t’s been awhile since merger mania produced a wave of high-profile takeover battles, butMicrosoft’s recent bid for Yahoo is following a fairly well-worn path in the corporate acquisitions game. (Msnbc.com is a joint venture of Microsoft and NBC Universal.) In theory, buying another company is a simple matter of buying all of its shares in the public market. But over the years, Wall Street’s lawyers and investment bankers have developed a complex playbook of offensive and defensive maneuvers that make the process anything but simple.
When one company wants to take over another one, it’s much easier — and cheaper — to arrange a “friendly” deal that has the blessing of the target company’s board of directors. What Microsoft originally tried what’s known in the trade as a “bear hug” — a highly public offer designed to look so attractive to shareholders that the company’s management goes along with the plan.
But Yahoo’s board of directors decided to not go along with the deal, saying they think their shareholders can do better. They may be trying to get Microsoft to raise its $31-a-share offer. Or they may be hoping another bidder — a so-called “white knight” — will come along and offer more money. Or the board may think Yahoo stock’s recent slump — from more than $33 a share last fall to $19 a share just before Microsoft’s bid — is temporary.
Having failed to win over Yahoo’s board, Microsoft could just start buying stock on the open market. But it would run into one of the more effective obstacles in the takeover defense playbook, a provision known as a “poison pill.” This measure says that if a hostile bidder buys 15 percent of Yahoo’s stock, the company can flood the market with new shares that sell for a steep discount to the market price.
The idea is to make it almost impossible for the acquiring company to swallow up all the shares of its target. Some companies take these defensive measures to extremes with defensive provisions that make them extremely unattractive as a target, like spinning off their best assets or triggering a large debt payment, also known as “suicide pill” or “scorched earth” defenses.
Another way to get around an uncooperative board of directors is to replace them — with a so-called proxy fight. Some companies “stagger” their board of directors, with terms that expire in different years so they can’t all be replaced at once. (Yahoo hasn’t done that.) To remove a board, you have to get a new slate of directors listed on the proxy ballot that is sent to shareholders every year before the annual meeting, usually in the spring. Microsoft has until mid-May to nominate candidates who would go along with its offer; it would then have to wage a campaign to get a majority of shareholders to vote for its hand-picked candidates.
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