Updated at 3:54 p.m. PDT with comments from institutional investor advisory services analyst on Yahoo's investor presentation materials.
Yahoo published on Monday its version of the details of the failed merger talks with Microsoft, as the Internet pioneer heads toward the frontlines of its proxy battle with investor activist Carl Icahn.
Yahoo, which wants its current nine-member board to be re-elected at its annual shareholders meeting on August 1 and is up against Icahn's dissident directors slate, is hoping to woo investors in its direction with a presentation filed with Securities and Exchange Commission.
The presentation also touches on the benefits of its Google advertising deal and offers an update on Yahoo's strategic plan and the background of its current board members. But investors will likely home in on Yahoo's past dealings with Microsoft, given that that is what raised Icahn's ire to begin with and prompted his efforts to wage a proxy battle with Yahoo to oust its board of directors.
Yahoo has been criticized by investors for failing to strike a deal with Microsoft, with shareholders expressing concern that its co-founder and board were more interested in keeping the company independent at all costs.
However, Yahoo characterizes Microsoft as "unresponsive and inconsistent" with its unsolicited buyout attempt of the company, further stating: "The record casts doubt on whether Microsoft was ever committed to a whole company acquisition."
Yahoo, which has been slammed by investors walking away from the stock since Microsoft said it was no longer interested in acquiring the entire company at $33 a share, laid out these complaints:
Microsoft was unresponsive to multiple requests
--No response to regulatory information requests
--No response to non-price terms, including value protection for stock component and regulatory issues
--No revised price indication until several months into the process, days before withdrawing
Microsoft's actions and statements were inconsistent
--Publicly announced an unsolicited offer
--Threatened to lower price
--Threatened proxy fight
--Only orally indicated possible increase in price after several months of discussions
--Initially stated "a few" more dollars, then "a couple" more dollars per share
--Withdrew offer within days of suggesting there "could be" an increase in price
--Ultimately proposed search-only "hybrid" transaction
But as with any controversy, there are two sides to the story.
"This is simply revisionist history," said a Microsoft spokesman.
And in looking at Yahoo's timeline of key events, here are a few things that pop out:
The timeline states that Microsoft made an unsolicited buyout bid for Yahoo on February 1 for $31 share and that the Internet pioneer issued a public statement on February 11, rejecting the offer.
But not included in the timeline is this: Yahoo, according to sources, never sent a letter to Microsoft to "formally" reject the offer until nearly three months after the offer was initially made. And without a formal rejection, the folks in the Redmond camp were loath to bid against themselves.
And while Yahoo's investor presentation carries much detail on the rational behind its interactions with Microsoft, two things that are lacking include the reasoning behind its rejection of Microsoft's verbal $33 a share offer and how it determined a counter offer at $37 a share was appropriate, said Chris Cernich, a mergers and acquisitions senior analyst with institutional investor advisory service Proxy Governance. Cernich's firm serves institutional investors like mutual funds and pension funds, providing recommendations to its clients on how to vote on proxy issues.
"It's puzzling why Yahoo didn't include their reasoning in the investor materials. It's important to understand the stewardship of the company," Cernich said. "I would have thought it would have been addressed in one of the first three investor slides. You have Icahn saying he's aghast that Yahoo would turn down an offer with a 72 percent premium, so you'd have expected to see why Yahoo turned it down in their investor presentation materials."
Instead of just jumping at the $33 a share offer, Yahoo believed it could potentially get more for its investors by countering with a $37 a share bid, said one source close to Yahoo. And in making its counter offer, Yahoo believed Microsoft would either come back with a higher offer than $33 a share, or stand firm at that price, said the source, adding it wasn't anticipated Microsoft would walk away altogether from the buyout bid.
According to Yahoo's timeline, there were four meetings between the companies to discuss the transaction, regulatory issues, and integration issues up until April 5 when Microsoft threatened to launch a proxy fight and lower its bid if a deal was not reached within three weeks. But Yahoo's timeline does not mention whether financial advisers were sitting in on these four meetings.
During the three-week deadline, according to the timeline, Yahoo and Microsoft did meet once--on April 15--with financial advisers to discuss a possible transaction and Yahoo provided the software giant with a "non-price terms proposal," according to Yahoo's SEC filing. So up until this point, Yahoo apparently had floated no official figures for a buyout price.
The three-week deadline then hit on April 26, with no deal reached. Yahoo sent a formal "private" letter to Microsoft on that day, indicating it was open to a transaction but not at $31 a share. Microsoft finally, officially received its rejection letter.
Four days later, and over the course of several days, the two companies met and Microsoft indicated a possible increase in its offer price for a full buyout of the company. The two companies also discuss a partial deal for Microsoft to buy Yahoo's search business.
On May 2, Microsoft orally stated it was willing to pay $33 a share for all of Yahoo.
The next day, the two companies meet to talk turkey about a price. Yahoo proposes $37 a share and then, Yahoo notes in its investor presentation that within hours, the software giant withdraws its buyout proposal.
Two weeks after buyout talks collapse, Yahoo's independent board members and management meet with Microsoft, which confirms it is no longer interested in acquiring the entire company.
The next day, the Redmond giant goes public with its statement about a "hybrid" transaction.
On May 24, the CEOs of both companies meet to talk about the "hybrid" deal and five days later Microsoft submits its "hybrid" proposal. Approximately a week later, on June 8, Yahoo's independent board members and management meet with Microsoft, which states it is not interested in a full buyout of the company--even at its prior price range.
Four days after that meeting, Yahoo announces its search advertising deal with Google, while Microsoft reiterates its interest in a "hybrid" deal but not a full buyout of the company.
Yahoo, in rejecting Microsoft's "hybrid" proposal, notes that the search pioneer would be left without any search assets if it had engaged in Microsoft's "hybrid" deal, as a result jeopardizing its ability to "maintain search and display volume," according to its shareholders presentation.
Yahoo also noted that Microsoft's 10-year exclusive search partnership would make the company dependent on Microsoft's ability to generate enough search advertising revenue to ensure it receives its share of those proceeds from the software giant.
"Despite all the challenges we've been through, including Microsoft's unsolicited proposal and now a proxy contest by Carl Icahn, Yahoo remains a unique value proposition," Jerry Yang, Yahoo co-founder and CEO, said in a statement. "The combination of our leading positions in search and display together with the benefits expected from our recently signed agreement with Google make us exceptionally well-positioned to capitalize on the convergence of search and display."
That said, Microsoft, according to sources, is contemplating making a sweetened offer to its "hybrid" proposal for Yahoo's search business and some members of the Internet search pioneer's board are receptive to that notion.
But will that satisfy Icahn and other institutional investors?