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What Should Yahoo! Do?
A search company searches for a strategy
Microsoft's bid for Yahoo! opened a can of worms that simply won't close. Although the company officially withdrew its bid, the questions that underpinned it won't go away as easily. How will Microsoft and Yahoo! compete with Google, which seems to dominate new markets every day? And what will Yahoo! do to placate the shareholders who believed that the merger was in their interest?
Carl C. Icahn has one answer: fight a proxy battle to nominate his own board of directors. That would give him effective control of the company, which he could then force into a merger with Microsoft. And he'd benefit by raising the company's share price, which fell since the deal was called off.
The other choice Yahoo! has is to forge a tighter partnership with Google, which doesn't want to face a more formidable competitor. That would help Yahoo! at first – but it would put the company under the thumb of its competition. Google could end up keeping Yahoo! profitable just so the government doesn't decide it doesn't have any competition. This might help Yahoo! executives, but it seems like a bad deal for shareholders, who would almost certainly lose in the long term.
The deal with Microsoft might not be so great, either. Mergers are rarely as simple as they look on paper, and the corporate cultures of these two companies are worlds apart. Yahoo! might not help Microsoft deal with the online software that threatens its core operating-systems business. And Microsoft might not help Yahoo! make its advertising business as good as Google's.
Yahoo! is now in a situation where it has to do something. Last week, shareholders were already impatient to know what that would be. Now that Icahn is involved, the question has only become more urgent.
Carl C. Icahn has one answer: fight a proxy battle to nominate his own board of directors. That would give him effective control of the company, which he could then force into a merger with Microsoft. And he'd benefit by raising the company's share price, which fell since the deal was called off.
The other choice Yahoo! has is to forge a tighter partnership with Google, which doesn't want to face a more formidable competitor. That would help Yahoo! at first – but it would put the company under the thumb of its competition. Google could end up keeping Yahoo! profitable just so the government doesn't decide it doesn't have any competition. This might help Yahoo! executives, but it seems like a bad deal for shareholders, who would almost certainly lose in the long term.
The deal with Microsoft might not be so great, either. Mergers are rarely as simple as they look on paper, and the corporate cultures of these two companies are worlds apart. Yahoo! might not help Microsoft deal with the online software that threatens its core operating-systems business. And Microsoft might not help Yahoo! make its advertising business as good as Google's.
Yahoo! is now in a situation where it has to do something. Last week, shareholders were already impatient to know what that would be. Now that Icahn is involved, the question has only become more urgent.
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