It was mildly interesting to watch the board of Yahoo indulge in a bit of "Microsoft is teh evil" posturing when presented with an unsolicited $44.6 billion bid for their prominent but listless business. There was a lot of discussion predicting anti-trust problems, but that's silly; Microsoft/Yahoo would be better competition for Google, not worse. The Yahoo board said no, but they're learning today that the word "hostile" in "hostile takeover bid" has real meaning: Microsoft has decided to wage a proxy fight, lobbying shareholders to oust the board and force the sale.
‘’We sent them a letter and said we think that’s a fair offer. There’s nothing that’s gone on other than us stating that we think it’s a fair offer,'’ Bill Gates, Microsoft’s chairman,
told The Associated Press on Monday. ‘’They should take a hard look at it.'’
By contrast, waging a proxy fight to oust Yahoo’s directors is comparatively cheaper. Much of the cost involves the hiring of a proxy solicitor and preparing mailers for Yahoo shareholders.
Furthermore, Yahoo’s board is vulnerable in a proxy fight. As The Deal Professor has remarked previously, Yahoo does not have a staggered board, so all of its directors are up for nomination this year. And, per section 3.3 of the by-laws, in a contested election, directors are elected by a plurality of votes cast.
If the deal goes through, Yahoo shareholders will get excellent value for their stock. If it falls through, the value of the deal is factored into the current Yahoo stock price, so the price of Yahoo shares will almost certainly plunge. Either way, the Yahoo board better not buy any green bananas.