So the world has teamed ("clubbed" is the preferred financial vernacular) up against Yahoo's BoD and their CEO in an effort to force a sale to Mr. Softie. It is actvist investing at it's finest, and all the big names have come out to play. Heck, even fish out of water are swimming onto shore (T. Boone Pickens). But it is supremely ironic then that in their quest for a fruitful transaction they actually harm themselves.
Activist investing can be quite beneficial to shareholders. Generally activists go after companies that are shooting themselves in the foot, and attempt to either overhaul the board, sell assets, overhaul a company's cap structure, or spinoff unprofitable business segments. Importantly there are almost always multiple paths to value creation. Activists believe that if they are able to accomplish one of their many goals (ie, refocus business units, but not overahul the cap structure) they will come out ahead.
Unfortunately Yahoo is a one trick poney. Icahn et al want to re-engage MSFT and YHOO in merger discussions, and force a deal at MSFTs previous offer price of $33. However, without any other exits (no hard assets to sell, for example), they are actually lowering the price Microsoft would have to pay for to culminate the deal. Why? Because now Yahoo is that DVD player in Crazy Eddie's going out of sale store. Why does Crazy Eddie drop prices to "crazy"? Because he has a time preference. If he doesn't sell all the dvd players by the time the store closes he probably won't unload them at all--and it is better to recoup some of the merchandise's value than none of it. Essentially this is the same predicament all the witch hunters are in: they need Yahoo to sell or they lose their money. If Microsoft walks away then T. Boone and Carl each have $10m whose value will probably drop to the low twenties. Therefore, it is better for Microsoft to now undercut their previous offer (not increase as many have pontificated). If Ballmer and crew come back to the table and say "sure, we'll make this happen, but only at $29" what leverage does Yahoo have? None. If the deal doesn't go through there are no buyers waiting in the wings (FTC would never let GoogHoo happen, PE is dead to us, and, well, there's simply no one else interested); no assets to sell; no special dividends to declare; nothing. Thus Microsoft is now even more in the driver's seat than before.
Carl is riding shotgun, but at the end of the day no one cares about the guy sitting shotgun. No one ever listens to backseat drivers anyways.
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