Parsing Yahoo's Response to Icahn: There Seems to Be Some Misunderstanding

While the raw heat from BICI (billionaire investor Carl Icahn) demanded thick-gloved parsing, the detailed response from Yahoo chairman Roy Bostock requires more delicate dissection. Here goes...

Yahoo: Dear Mr. Icahn:

Translation: Do you mind if I call you "Carl?" Uh, sorry, never mind.

Yahoo: We are in receipt of your letter with regard to your intention to seek control of Yahoo!'s board of directors.

Translation: Bummer. Some of us were still hung over from the "victory" party.

Yahoo: Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal.

Translation: Lies! Lies! Lies!

Yahoo: A fair-minded review of the factual record leads to one conclusion:

Translation: We've already been practicing our lines for the litigation.

Yahoo: ...that Yahoo!'s ten-member board, comprised of nine independent directors along with Yahoo! CEO Jerry Yang...

Translation: We're standing together on this. At this point, it's our only option.

Yahoo: ...remains the best and most qualified group to maximize value for all Yahoo! stockholders.

Translation: ... no matter what our track record with Cuban might be.

Yahoo: Conversely, we do not believe it is in the best interests of Yahoo! stockholders to allow you and your hand-picked nominees...

Translation: The lawyers wouldn't let me use the word "toadies."

Yahoo: ...to take control of Yahoo! for the express purpose of trying to force a sale of Yahoo! to a formerly interested buyer...

Translation: We still sometimes have a hard time saying the word Mi... Mic... Micro.... I mean, the Formerly Interested Buyer.

Yahoo: ...who has publicly stated that they have moved on.

Translation: That's right. They said it in public. That means it irreversible, right?

Yahoo: Please may I remind you that there is currently no acquisition offer on the table from that company or any other party.

Translation: Please may I remind you that Ballmer has already been traumatized by changing his mind once. Do you really think you can get him to do it again?

Yahoo: That said, we have been crystal clear in our stance that we have been and remain willing to consider any proposal from any party including Microsoft if it offers our stockholders full and certain value.

Translation: We are not, ever have been, nor ever will be maniacally intransigent.

Yahoo: From the beginning of the process with Microsoft, Yahoo!'s independent directors focused on one central goal: how best to maximize stockholder value.

Translation: Personal motion never stood a chance against our cold capitalistic analytics.

Yahoo:
At all times directing this process, Yahoo!'s independent directors carefully considered Microsoft's initial unsolicited proposal, which was at the time valued at $31 per share.

Translation: But everybody said they'd go higher.

Yahoo: After considering input from its financial advisers the board unanimously concluded that Microsoft's proposal significantly undervalued Yahoo! and was, therefore, not in the best interests of the company or our stockholders.

Translation: Independent third parties -- that we hired -- confirmed our opinion.

Yahoo: While we rejected this offer publicly on February 11, 2008, we could not have been more clear in that communication and in every subsequent communication, both public and private, that we were and are willing to enter into any transaction that would maximize value for stockholders and provide them certainty of value.

Translation: We made it clear that getting Jerry over the hump would require a nutty premium.

Yahoo: The record of our efforts to engage Microsoft in meaningful discussions is unequivocal.

Translation: We documented everything to protect ourselves.

Yahoo: Following receipt of Microsoft's proposal on January 31, our board of directors has met over twenty times to review Microsoft's proposal and Yahoo!'s other strategic alternatives.

Translation: Twenty times! And I still couldn't remember the access code for the conference calls.

Yahoo: Throughout this process our board kept an open mind and an open ear.

Translation: No, the other ear did not have Jerry's tongue in it. Each of us used our other ear to listen our own lawyers about our liability.

Yahoo: Our independent directors met with several of our largest stockholders to solicit their views and to make it clear that Yahoo!'s independent board is fully committed to maximizing stockholder value. In addition, at the direction of our board, our management team met with many of our investors to provide insight into Yahoo!'s strategy and views on value.

Translation: We schmoozed the super-delegates. Most of them never dreamed Microsoft would walk.

Yahoo: Our board's openness also extended to Microsoft.

Translation: There was never anything personal about any of this.

Yahoo: Without reciting all of the contacts between us and between our advisers, the senior-most management of Yahoo! and Microsoft and the companies' respective financial advisers spoke on numerous occasions and met in person seven times.

Translation: Seven times! Several of our bankers didn't even get to go to the Masters.

Yahoo: During those meetings, Yahoo! discussed its strategic objectives in search and display advertising monetization, its perspectives on operating strategy and integration in a transaction with Microsoft, its perspectives on transaction synergies, and other non-price deal terms.

Translation: We explained how we wanted to outsource ads to Google, what protection conditions were non-negotiable, and which "synergies" were off-limits for at least three years.

Yahoo: Because certainty of closing is a critical issue, we sought to understand Microsoft's thinking with regard to the regulatory issues associated with a potential transaction.

Translation: We asked Microsoft to provide potentially pejorative statements that we knew their lawyers would forbid.

Yahoo: In fact, at the board's direction, our lawyers on March 28 asked for additional information in this regard, information which was never forthcoming.

Translation: We worried that their response had been accidentally erased by Outlook.

Yahoo: On April 15th, a meeting was held at Yahoo!'s request.

Translation: That's right, we asked them.

Yahoo:
At that meeting, which included our respective financial advisors, we made clear, once again, that we were open to a transaction with Microsoft.

Translation: We read it off a card the same way we read the forward-looking disclaimer on a road-show.

Yahoo:
During those discussions, Yahoo! made a detailed presentation of its strategic and financial plan, its thoughts on integration and its view with respect to the potential synergies that could be achieved in a transaction, essentially laying the foundation for Microsoft to understand--and respond to--our board's conclusion that Microsoft's offer substantially undervalued the company.

Translation: It was the same "more than overly optimistic financial forecasts" that you said we hid behind.

Yahoo: Following that meeting we also provided to Microsoft a list of key non-price deal terms that our board believed were critical items to be addressed in a deal to provide reasonable protections for our stockholders.

Translation: Apparently Ballmer objected to the idea of having to break into the monkey dance every time Jerry sharply clapped his hands twice.

Yahoo: Throughout this period, Microsoft continued to state that it would not raise its offer, and even suggested that it could lower it.

Translation: We didn't believe them then, but we now find it convenient to do so.

Yahoo: Despite this failure by Microsoft to respond in any substantive way to any of Yahoo!'s requests, on May 2nd, the same day we first learned of Microsoft's apparent willingness to increase its proposal to $33 (although this oral "offer" was never delivered in writing and did not include details of a cash/stock mix), our board determined to continue discussions...

Translation: Let the record show we never received a formal offer of more than $31.

Yahoo: ...instructing Jerry Yang...

Translation: He follows our every suggestion.

Yahoo: ...to indicate to Microsoft that we would be prepared to enter into a transaction that valued Yahoo! at $37 per share and that provided reasonable certainty of value and certainty of closing.

Translation: That price was our idea. Jerry was just the messenger.

Yahoo: This was communicated to Microsoft in-person at a meeting in Seattle on May 3rd. With Microsoft's offer at $33 and Yahoo!'s counter-proposal at $37, Microsoft elected, within hours, to walk away from the negotiating table and informed us that they were "moving on," having never engaged further on price or any of the key non-price deal terms.

Translation: They were supposed to say $34... and then we were supposed to say $36... and then we were all supposed to agree on $35. It was gonna be so perfect.

Yahoo: In short, Yahoo!'s board was at every point in this process prepared to enter into a transaction with Microsoft that would maximize stockholder value--and included certainty of value and closing.

Translation: In short, maximizing value by extracting a 72% premium simply wasn't good enough.

Yahoo: What Yahoo!'s independent board refused to do was to allow control of this company to be acquired for less than its full value.

Translation: "Full value" is exactly 81% more than what the market value was before the company was considered in play.

Yahoo: That brings us to today.

Translation: We've been expecting you, Mr. Bond.

Yahoo: Our business is performing well as evidenced by our first quarter results.

Translation: Disregard the twelve prior quarters.

Yahoo: As we have publicly stated, our board continues to actively and expeditiously explore strategic alternatives to maximize stockholder value.

Translation: We even offered our search business to Cuban in exchange for two first-round draft picks.

Yahoo: None of the alternatives we are considering would preclude us from entering into a transaction with Microsoft or any other party.

Translation: We know, at this point, that we can't afford to get cute.

Yahoo: We continue to believe that Yahoo!'s current board has the independence, the knowledge, and the commitment to navigate the Company through the rapidly changing Internet environment and to deliver value for Yahoo! and its stockholders.

Translation: With liberty and fraternity for all. Amen.

Yahoo: We look forward to a productive dialogue.

Translation: We're not going to let this become a monologue.

Yahoo: Very truly yours,

Translation: We've come too far to buckle now.

Yahoo: Roy Bostock, Chairman of the Board

Translation: Or simply Mr. Bostock, if you prefer.