Time Warp: Corporate Raiding Redux. Yahoo, CBS, CNET and Icahn
The big merger news this week was supposed to come Friday with the expiration date of Electronic Arts hostile takeover for Take Two. Unfortunately, a number of people didn’t get the memo. Instead, Thursday became the big day for M&A activity with not one but two major announcements lighting up the news wires.
On one front, CBS stepped up to rescue CNET from the grips of activist shareholders by means of a $1.8billion cash tender offer. Elsewhere, financier Carl Icahn went public with his plans for Yahoo. He’ll begin the process Microsoft was unwilling to initiate: a tender offer to take control of Yahoo’s board of directors.
Three major deals in a week – two of them hostile and one something of a white knight rescue… it almost seems like we’ve slid back to the 80’s.
ICAHN vs. YAHOO
Reusing a tried and trusty move, a move he used a short while ago to squeeze Motorola, Icahn went to the press and made public a letter to Yahoo Chairman Roy Bostock. In the short brief (reprinted here), Icahn scolded the company and its leadership saying they “completely botched” the Microsoft merger opportunity. He said they acted “irrationally” and that the decisions made were “unconscionable.” In the interest of shareholders, and at the their request, Icahn felt he had no choice but to get involved.
Confirming the earlier rumors, he’ll seek to replace the board with a slate of his own nominees at the July 3rd annual meeting. Supporting the slate, he’ll cast votes for at least the 59million shares he already acquired. Icahn has also sought FTC clearance to acquire as much as $2.5billion worth of the company.
Yahoo’s chairman, Roy Bostock, responded promptly to Icahn’s criticisms with a letter of his own. In no uncertain words, he suggested Icahn is out of his element. “Your letter reflects a significant misunderstanding of the facts,” he replied. He them went on to defend Yahoo’s decision making.
[Full copies of the letters are available here.]
With the letters, the proxy fight is officially on. From here forward, things are sure to get sticky. Now that Yahoo is “in play” it is almost guaranteed other activist shareholders and hedge funds, firms like Paulson and Company, Tudor, Highfields, and Firebrand, will begin buying. With hundreds of millions, even billions, available for them to draw upon – they’ll be able to accumulate a large, and influential position. The bigger the stake, the more leverage. At the same time, both sides will turn to the media and investor relations consultants to attempt to swing votes among existing shareholders. There will be power lunches and late night calls, exhaustive communications. Like Murdoch did in buying Dow Jones, Icahn will likely give face time to any major shareholders. It’ll have all the trappings of election year politics.
Icahn’s strategy of chasing off the entire board will hinge on his ability to sway existing shareholders and former a consensus. There’s some risk in that. Compared to trying to replace just a few board members, there’s more opportunity for failure. On the other hand, asking for everything on the first pass isn’t unlike a negotiation. He can start high and slowly step back to a compromise that still suits his goals. The prospect will be to gain at least a few seats, if not the whole board.
Sitting back, hands clean, Microsoft will be watching. As Steve Ballmer said in the thick of things, “With the right circumstances it’ll happen. Without the right circumstances, it won’t.”
Now, Icahn can play the bad guy, and if victorious, Microsoft can come in untarnished as a savior, with all goodwill intact.
Google, Madison Avenue and plenty of advertising startups will be watching too. For them, distraction at Yahoo could spell opportunity.
One thing is for sure, Yahoo executives aren’t getting a summer vacation.
(More on Icahn’s strategic history can be found here on Metue)
CBS AND CNET
There’s an almost Twilight Zone nature to Thursday’s activities. With one company being drawn into a proxy fight and another being rescued from one by acquisition, it almost looks like a before and after photo.
For CNET, the past few months have been filled with controversy. Not only has the company struggled to improve growth and performance, they’ve also been fighting in public and court with hedge fund Jana Partners , who, along with partners, has been seeking to replace CNET’s board.
At issue has been strategy. Jana said in March they believed CNET needed “comprehensive change and the right board to implement it.”
Already Jana had won a Delaware chancery court ruling in March. CNET appealed and on Tuesday, the Delaware Supreme Court affirmed the earlier ruling. That decision gave Jana the upper hand.
Enter CBS. Thursday, the TV network announced they’d agreed to acquire CNET for $1.8b in cash. It will be the largest single purchase in CBS history and the deal will immediately give the network a top ten Internet company.
No matter how it is sliced, it’s a bold and creative (though risky) move. Historically, none of the major TV networks has been truly successful at building a leading Internet brand of their own. Part of the trouble has been content. The bread and butter of the network properties, video, was not well suited to more typical website content. Now that’s changing.
Today, video has become commonplace online. From news footage, to novelty, to full-fledged TV and movie broadcasting, it’s all there. With CNET, and its porfolion of web properties (News.com, Gamespot, Chow, etc). CBS will gain a broader distribution platform and more tools for web authoring and engagement. In many ways, it’s similar to the way CBS’ purchase of last.fm in May 2007 gave them the prospect to enhance CBS Radio properties.
“The core business of CNET and CBS Interactive represent near-perfect category symmetry I premium online content,” explained Quincy Smith, head of CBS Interactive.
The forward looking question is: will CBS be able to take the struggling Internet news pioneer and turn it into gold or will they end up a disappointment?
It’s an interesting prospect. CNET has struggled to evolve with the web into the “Web 2.0” world, still from traffic and advertising perspectives, they remain a significant brand. The infusion of new capital, new content and a broader umbrella under which to evolve could be a shot of adrenalin. It could also be an ineffective placebo.
At first pass, the deal is interesting. Possibly a little pricy but still intriguing. CBS has slowly been evolving into a better rounded media conglomerate. There’s growth to movies with CBS films, evolution in radio and now an expansion of the web footprint
In a way, it almost looks like CBS is chasing News Corp or former sibling, Viacom, to become a more diversified yet still deeply integrated media shop.
The buy represents a 45% premium and should close in the third quarter. CBS has ample cash on the books to close the deal.
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