Ok, technically, it isn\u2019t greenmail, but the actions of Carl Icahn in regards to Yahoo! have been very reminiscent of the old strategy. Basically, Icahn used his fortune to buy up a large amount of Yahoo stock and then complained loudly in the media about the Yahoo board, specifically about their decision not to sell to Microsoft claiming that shareholder value was not maximized.<\/p>\n
What Icahn really means is that his short term investment has not paid off in a way that he would like and instead of admitting that perhaps he made a mistake, he blames Yahoo\u2019s board for not selling out to Microsoft so he could squeeze a profit out of his position. But, is he right?<\/p>\n
Let\u2019s be frank, Wall Street has never been a hyper-accurate barometer of a company\u2019s true worth on any given day, but that inefficiency is what theoretically creates the profit potential in the markets. By finding and investing in a company that is improperly valued, you can reap the rewards when everyone else realizes that the company is wrongly valued and the price moves to make up for it. <\/p>\n
But, there in lies the rub. Everyone else must decide it is valued wrong. It doesn\u2019t matter if you are right! It is the difference between the NFL playing for a championship and College Football using the voting system. If you want to win the National Championship in college football, you not only have to be the best team, you also have to convince the right people that you are the best team (sports writers and coaches) because if they all vote for another team, it doesn\u2019t matter how good you are.<\/p>\n
So, Yahoo, currently trades around 22.50 per share. Microsoft offered to buy Yahoo for $31 per share, and then later at $33 per share. (No word on whether Icahn thinks it was a bad move for Yahoo\u2019s board to say no long enough to get another $2 per share.) Good deal?<\/p>\n
Well, Yahoo\u2019s stock price one year ago was $24.99. Still, $33 looks pretty good. On the other hand, at the beginning of 2007, Yahoo\u2019s price was close to $28 per share. Now, maybe this whole \u201cpremium\u201d isn\u2019t so high after all. <\/p>\n
Yahoo\u2019s Stock Performance<\/p>\n
Yahoo has declined just over 12 percent since Jan 5, 2007, while the Dow Jones Industrial Average is down 7.75 percent over the same period. On the other hand, over the most recent 12 months, the Dow is down 17 percent and Yahoo is down just under 11.5 percent.<\/p>\n
The point? Maybe Yahoo\u2019s stock performance isn\u2019t so terrible after all. Sure, it isn\u2019t doing as well as Google, but neither is Microsoft.<\/p>\n
All of this brings us to the real point. A stock\u2019s price is not about it\u2019s past, it is about it\u2019s future. The question an investor has to ask himself is whether or not he feels a company will be worth more in the future than it is today. Specifically, will Yahoo be worth more next year or in five years than it is today? All this business about maximizing shareholder value depends a great deal on the answer to this basic question, and that answer depends very much on the time frame you are looking at.<\/p>\n
Yahoo is the number two player in the search engine space. Whether they have maximized that value to date is debatable, but it is not debatable that there is some value in being the number two search provider. In fact, one could argue that there is so much value there that the current price is cheap. In that case, Johnny-come-lately-Icahn and his hope to squeeze a profit by taking his large block of stock bought in the low twenties by selling in the low thirties isn\u2019t what is the best shareholder value. Instead, Yahoo actively and successfully leveraging its number two spot in order to boost its shareholder value to $33 and then to $50 and so on over the next few years would be maximizing shareholder value.<\/p>\n
Who is right? Only time will tell, but for the moment, it looks like Icahn\u2019s \u201cvictory\u201d has been to get a seat on Yahoo\u2019s board. That didn\u2019t work out too well at GM. We\u2019ll see if he does any better here.<\/p>\n","protected":false},"excerpt":{"rendered":"
Ok, technically, it isn\u2019t greenmail, but the actions of Carl Icahn in regards to Yahoo! have been very reminiscent of the old strategy. Basically, Icahn used his fortune to buy up a large amount of Yahoo stock and then complained loudly in the media about the Yahoo board, specifically about their decision not to sell to Microsoft claiming that shareholder value was not maximized. What Icahn really means is that his short term investment has not paid off in a way that he would like and instead of admitting that perhaps he made a mistake, he blames Yahoo\u2019s board for not selling out to Microsoft so he could squeeze a profit out of his position. But, is he right? Yahoo\u2019s Value and Microsoft\u2019s Offer Let\u2019s be frank, Wall Street has never been a hyper-accurate barometer of a company\u2019s true worth on any given day, but that inefficiency is what theoretically creates the profit potential in the markets. By finding and investing in a company that is improperly valued, you can reap the rewards when everyone else realizes that the company is wrongly valued and the price moves to make up for it. But, there in lies the rub. Everyone else … <\/p>\n