Diagramming Yahoo's position 3:03
Author Dan Roam breaks down Microsoft's rejected bid for Yahoo and Carl Icahn's reasons for launching a proxy battle
Have you ever doodled on the back of the napkin? Well, it has been the start of some multi-million-dollar ideas, Dan Roam is the author of "the Back of the Napkin", he thinks everyone has a talent when it comes to visual thinking and he thinks they can solve the problems of some of the world’s largest companies. We’re gonna talk to him right now about Microsoft and Yahoo. The saga continues.
It continues.
Let’s talk about first, how visually, people can see, why a tie-up with Microsoft and Yahoo might make sense, Dan.
OK, so Poppy, Let’s go back into a little bit background, imagine if you will in the market of software, you have a big old company out here called Microsoft. Fair enough, it’s got about a 282 billion-dollar market cap. Now the interesting thing is that, as we know, Microsoft offers lots of different applications, lots of different software solutions, but they’re all expensive. Let’s face the way Microsoft makes its money is by selling you licenses to use their software. Yep.
Now down here, the other extreme we have almost as big a company, certainly getting there at 181 billion, which is the big Google down here. Now the interesting thing, they don’t have as many applications as they offer, but they’re all free. Nobody pays to use any kind of Google offering. So what’s Microsoft wanna do, are they gonna be able to suddenly drop the prices of all their software as Google starts to make more and more applications to compete? No! What Microsoft does is to see this a little company down here, called Yahoo, valued at about 35 billion. It says you know what? We can block Google by just buying that. Purely defensive move, defensive offensive move makes perfect sense, helps Microsoft buy its way into the free software space, that’s why it's interesting for them to do it. Now as we know, they made deploy, didn’t work out, they decided not to do it and now the sudden Carl Icahn's coming back and saying "let’s do it anyway".
Oh, yeah, Yahoo wants to be this Google on its own, while the shareholders think it can’t provide without tie-up, so now Carl Icahn jumps into the mix, launching a proxy battle, he wants to tie the two up. He wants to name his own board members, so why is Yahoo attractive to call Carl Icahn with the tie-up with Microsoft, why is it doing this?
Ok, let’s look at a different kind of chart now. Let's look at what it just the prices about what’s gonna happen. So when Microsoft came in and made its offer to Yahoo, it’s made its offer at 31 dollars a share at the time Yahoo was trading at I think about 24 dollars a share. Yahoo said no, so Microsoft said OK, we’ll go up to 34 dollars a share. Look at the difference already between what Yahoo’s actually trading at and what they offers.
And yahoo is actually below 20 when their first offer came in NASDAQ, yeah, 19...
Was it below 20, OK? So it’s probably down here and then it went up. And all of a sudden, what Jerry Yang says is we want 37 dollars. Look at the difference that he is asking for, Microsoft Steve Ballmer says too rich for me, I’m out of here. Forget the whole thing. But what Carl Icahn, now he’s saying, look at all the shareholders who are seeing the amount of money, that they potentially just lost between the difference at what Yahoo’s actually trading at and we were just offered. So, of course, Icahn comes in and says, look guys, let’s stop this proxy battle, let’s get rid of all the people who said no, let’s get that value of Yahoo back up to here, let’s make the sale. Make sense.
Alright, thank you, Dan, it’s not just Microsoft and Yahoo that can draw things out, a lot of other big companies have done, they can do that. Check out Dan’s website thebackofthenapkin.com