Yahoo Paid Big in Takeover DuelFending off Microsoft cost a little more than a quarter of firm's second-period net
Yahoo recently updated the amount it has paid for advice in fighting off the takeover advances of Microsoft. The new, higher total? $36 million.
Forget that the number is a little more than a quarter of Yahoo's second-quarter net income of $131.3 million, and up from the $22 million it disclosed in a filing in late July. The cost might have been worth it, because Yahoo appears to have succeeded in what many suspected was the goal of Chief Executive Jerry Yang and Chairman Roy Bostock since the end of January: fending off the takeover advances of rival Microsoft.
Of course, Yahoo never openly admitted it didn't want a deal with Microsoft; in fact, it bent over backward to tell investors and Microsoft that a takeover at $33 a share was practically one of its most cherished hopes.
Still, the body language -- the delays, the PowerPoint presentations, the coy responses -- signaled something very different to Yahoo investors, who suspected the Web-search-and-advertising concern wasn't as eager to be bought as its words indicated.
Several, including Gordon Crawford of Capital Research & Management and Carl Icahn, made their displeasure clear to Yahoo management.
For Yahoo's advisers at Goldman Sachs Group and Lehman Brothers Holdings, Microsoft's departure is bittersweet. As their client was dragged through the mud, criticized and disbelieved by investors, the battle against Microsoft hardly fit the profile of the ideal hostile-takeover defense.
And a portion of $36 million in fees, while generous, is only a fraction of what those advisers would have received if Microsoft had achieved its $44 billion-plus goal.
In his research report Monday, Morgan Stanley analyst William Greene predicted that if crude oil falls to $115 a barrel, the airline industry could be profitable. Well, oil was at $115.22 at midday Wednesday in New York, after settling at $113.01 Tuesday.
Providing this pricing point proves durable, will the industry take advantage?
Perhaps overlooked in the market's optimism Monday -- airline stocks were among the biggest gainers, though they were mixed Tuesday -- was a significant warning from Mr. Greene, namely that "falling oil prices introduce the risk of destructive competition as plans for capacity rationalization and revenue discipline fall victim to the seductive cost and market share benefits associated with capacity growth. Such actions would inevitably erode operating margins in an oil-driven up-cycle."
That is analyst-speak for fears that airlines might be lulled by those falling oil prices to forget that the real source of the industry's dysfunction is intense competition from too many domestic players.
Consider the issue of capacity. The agreement to combine Delta Air Lines and Northwest Airlines was motivated in part by the desire to achieve economies of scale. And indeed, analysts have pushed mergers as the best way to ensure steep cuts in the number of flights industrywide.
US Airways President Scott Kirby has said the industry is expected to cut capacity 9% by 2009. But will that be enough? Calyon analyst Ray Neidl, for instance, has put the needed figure at 20%.
The falling price of oil is good news. But for an industry that has been grounded by losses, it isn't a cure.
By: Heidi Moore
Wall Street Journal; August 14, 2008
