Yahoo Microsoft Deal- Yang Plus Yahoo Equals Yikes!

By: Mike_Stathis

This is the first time I've written anything about the Yahoo-Microsoft deal because I typically don't allow myself to get distracted by noise. In fact, I've been receiving numerous email requests for more articles. My response is that I do not feel the need to pump pieces out on a daily basis because I have no time for soap operas. The fact is that there really isn't anything new in the economy as far as I am concerned. I've said all that needs to be said. Just read my archives.

As trivial as I view the whole Yahoo-Microsoft soap opera, it's annoying to have seen so many obsess over it. So I wanted to point out a few things. From day one when Microsoft made a bid for Yahoo, investors should have sold Yahoo. This is a basic rule followed by all sophisticated investors. You never wait around to see what happens. Why would you? Take the money and run. Here's why. First of all, many acquisitions are not approved, and even when they are it takes several months. In the meantime, you'll be exposed to market risk which will send the stock lower. In contrast, by selling on the announcement, you can use the cash for other investment ideas.

Apparently T. Boone Pickens disagrees. He did just the opposite and bought Yahoo after the deal was announced. Of course, his $250 million loss in the Yahoo gamble is the least of his worries. In the past few months, he has lost around $2 billion from his horrendous bets on oil. Mr. Pickens, if you had only read my oil forecast in July. Of course Pickens didn't really make his money because he's a great investor. He simply made one very obvious call – his bet on the Canadian Oil Sands a few years ago. But still, most of his money came from the carry on his hedge fund, which I would estimate to be in excess of $2 billion. In just one year alone, he cleared $1.5 billion in total fees.

It's amazing how many people out there have access to investment capital and continue to show how clueless they are - Icahn, Kerkorian - the list goes on. These guys made their money in the past when things were much different. As the saying goes on Wall Street, “You're only as good as your last call.” Yet, since the media insists they are great investors, most people accept this without checking their recent track record.

As the economy continues to wind down and Yahoo's business approaches crisis mode, Yang is already begging Balmer to come back to the table. The problem with Yang is that he has absolutely no idea how to run the company he started. That is precisely why he was replaced as CEO early on. As well, he has no idea how to negotiate, no clue about the economy and does not understand relative valuation. If he understood these three things he would have agreed to the $47 billion offer from Microsoft a few months ago.

Now Balmer insists Microsoft is not interested in Yahoo. You'd have to be a fool to believe that. Balmer IS interested in Yahoo. He just knows who he's dealing with – Yang, and a company that's in trouble. Of course Microsoft isn't exactly a shining star these days either. He's basically laying the groundwork for Yang to come begging to him for a desperation deal. I feel like I am watching a man play ball with an infant. http://biz.yahoo.com/ap/081107/as_australia_microsoft_yahoo.html Yang reminds me of the guy who decides not to sell a stock he has lost some money in, even when the signs indicate it's headed further down. Only later after the stock has been blasted does the guy wish he'd sold it before at the higher price. Ultimately, he ends of up selling it much lower. It's the typical buy-high, sell-low mentality.

Of course Balmer won't exactly win the “Businessman of the Year” award in my book. The fact that he offered $33 per share for Yahoo demonstrates he too was clueless about the economy. Why not wait until things turn really ugly and scoop up Yahoo for $10 a share?

All of this just confirms my view that 90% of the CEOs heading publicly traded corporations in America are useless. After all, they don't have to be good. Many of them step into companies that are already established. And they know that regardless how poorly they perform, they'll walk out with millions, and in some cases billions. It's truly embarrassing, but only about 9% of America 's CEOs are good, while I would consider only a small handful as “great.” And I certainly wouldn't place Balmer in the “great” category. At this point, I'd rate him as “fair,” but only because it's Friday and I'm in a good mood. How the largest technology company in the world could allow Google to seize the search engine market in such a short time is beyond me.

It's likely that Yahoo will eventually be bought for much less if they don't get their act together and bring in a real CEO. The same is likely for eBay. One thing is for certain. Nether of these companies has much of a future in terms of earnings growth, so they won't make it on their own. Perhaps they can convince one of the clueless media companies buy them. Finding a real CEO is going to be quite difficult because, like all established companies, they will look for some old man with a padded resume who worked for some large company but didn't really do anything of value on his own.

Serving as a clone of America 's mainstream media BS isn't going to get you anywhere. Just look at the state of the media industry. They've been in decline for several years because people are sick of the shills, irresponsible journalists, and morons on TV and radio with horrendous track records and hidden agendas. In an effort to preserve their political and financial agendas, the media industry is now facing the blade of the double-edged sword. People are starving for real leadership and guidance from the media, not hacks and shills who hide the truth and censor real experts.

Yahoo needs to realize this and back to what made them successful in the first place – creativity, and content. Except this time, they need a real business leader and strategist. More important, they need a CEO who knows how to execute. Otherwise, Yahoo! Might be known as Yikes!

By Mike Stathis
mike@apexva.com

Copyright © 2008. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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