ProxyMatters.com

Microsoft’s Steve Ballmer showed fiscal prudence and restraint by refusing to bow to Yahoo’s expensive demands and simply walked away.

Now, Yahoo faces an unenviable position, dealing with the fallout from “winning”.

First, Yahoo didn’t win.  Maybe its employees did, but not the shareholders.  And that’s not how our system is supposed to work.  Come Monday morning, expect Yahoo’s shares to be back down below $20/share, a far cry from the $33/share that Yahoo shareholders could have had via Microsoft’s offer.

How attractive can Yahoo be?  The company talked with everybody in the industry — Time Warner, NewsCorp, Google, etc. — and no one wanted to dance.  Talk about feeling like the ugly duckling today.

Second, as a direct result of the shareholder losses, look for shareholder lawsuits to be filed.  The first was likely typed up this weekend and will be ready to submit the moment Yahoo’s stock opens for trading early Monday morning.  Among the complaints, namely that never before has a 70% premium (based on Microsoft’s increased offer) looked so unfair.

Third, good luck to Yahoo operating alone.  While Yahoo sits on the sideline by itself, Microsoft has shown its willingness to do a major deal to move ahead in the pack.  Other targets may not be as attractive as Yahoo, but Microsoft still could leave Jerry Yang & Co. in the dust by purchasing several companies for the price it offered Yahoo.

Fourth, and most interestingly, don’t rule out the possibility of a slate of dissident investors running for Yahoo’s board in the coming proxy vote.  And not necessarily Microsoft’s nominees.  There are a couple major investment groups with the experience, clout and connections to pull this off, especially if Yahoo’s stock falls into the teens.  These dissident candidates would run on the platform of (1) Yang & Co.’s embarrassing mismanagement of the Microsoft talks, and (2) the candidates’ willingness to accept a $33/share offer, should it still be available.

My guess is that Microsoft, having had no part in the proxy campaign, would still be willing to talk to the new Yahoo board, should they be elected.  To be continued…

With both Microsoft and Blockbuster exhibiting extreme patience with their acquisitions attempts, it’s worth looking at the root cause.

Namely, it’s the lack of other possible buyers.  The turmoil in credit markets has stripped much of the power away from private equity firms, who have dominated the M&A landscape for much the last three years.

Meanwhile, lean-pocketed strategic buyers have little desire to increase their leveraged capital base.

This leaves few buyers in the marketplace, allowing those on the prowl to be extremely patient.  Whereas Yahoo would have likely found several buyers or partners in times past, barely anyone will dance with her now.

And consider Circuit City.  Would you risk your credit rating in this market by taking on this troubled operator?  No, and Blockbuster knows it, allowing it to patienly await Circuit City’s response.

All this creates a tremendous opportunity for these would-be buyers to take their case directly to shareholders, a timely and open process that in the past would have only allowed another buyer more time to come into the picture.

But that buyer is not coming.  And we shall have a fun proxy season.

This week saw both Microsoft and Blockbuster stand firm on their acquisition bids for Yahoo and Circuit City, respectively.

Despite Yahoo’s strong quarterly results, Microsoft maintained its current bid, even hinting that it may drop its bid entirely.  Great negotiating tactic, if you can get the target to believe it.

Microsoft’s Steve Ballmer is pretending to be a disinterested buyer, much like a flea market shopper.  Willing to buy at a good price, but not willing to overspend.

Comcast’s Brian Roberts used this approach on Disney back in 2004, and was highly criticized for not being aggressive.  I think Roberts was being very prudent.   His job is to create shareholder value, not be aggressive.  Like a flea market shopper, sometimes it’s best to simply walk away from the table.

Earlier in the week, Blockbuster indicated that it would walk away from any acquisition attempt before any proxy contest could develop, if the Circuit City board refuses to take Blockbuster’s offer.

This strategy is brilliant.  Legally, proxy contests remove liability away from directors, who can always point back toward the shareholders themselves if faced with a shareholder lawsuit.  With Blockbuster’s indication that it would not proceed with a proxy fight, the pressure is back on the board to deliver shareholder value either through a sale or operating results.  And as we’ve seen, Circuit City has frequently failed in the latter.

What is causing all the acquisitors to go casual?  Coming in Part II.

As expected, Yahoo announced strong results on yesterday’s conference call (see Reuters) and laid out a detailed strategic plan for future growth (see NY Times).

Honestly, it sounded as if the strategic plan presented was simply another in the long line of Yahoo’s grand plans that sound great but fail in the end to deliver.  In fact, these plans might as well have been created yesterday, as no measurable difference in Yahoo’s results or product offering are even visible yet.

As the Reuters piece points out, the financials were strong enough to likely convince Microsoft not to lower its offering price, but this was never a probable scenario.

After trying to make a deal with anybody and everybody with the exception of ProxyMatters.com, and after giving its ultimate pitch on conference call yesterday, Yahoo has no more cards left to draw.

If Yahoo’s internal finance team has ever been pressured to cook the books / squeeze the green / find money where there is none, today is the day.

Yahoo will report earnings at 5pm EST today.  To stave off elimination in this Proxy Survivor game, Yahoo must come up with some big numbers, strong guidance, and a healthy dose of momentum.

Conference calls and earnings reports are all about spin, and today’s will be no different.  Expect much more detail about future growth prospects, with special attention given to Yahoo’s arrangement with Google.

Kudos to CtW Investment Group for bringing the issue of broker votes back to the forefront with their well-publicized letter to SEC Chairman Christopher Cox (read it here).

Long known to create a mighty conflict of interest for any brokerage firm trying to win corporate investment business, broker votes go against the grain of every major piece of financial doctrine since the Great Depression.

Simply put, the concept of broker votes is absolutely asinine and was likely invented by the same communist knucklehead that created the Democratic party Super Delegate voting system.

Even more disturbing is the ability for brokerage firms to discard investors’ votes Hugo Chavez-style if those votes are not received 10 days in advance of the shareholder meeting.  Where has Joe McCarthy been when we’ve needed him?

Sure, there was probably a time when broker votes were required due to the threat of not meeting a quorum.  But by the time the NYSE called for the end of broker votes in 2006, institutional money more than ensured that any quorum could be met.

It’s time for the SEC to recognize the 21st century demands of investors and give broker votes the death sentence.

Our friend Broc Romanek at CorporateCounsel.net writes an excellent post, breaking down each presidential candidate’s feelings on executive compensation.

Most importantly, Broc let’s us know how divided he personally is on the issue, detailing the following pros and cons:

• CON: Compensation is a board task.  Leave it to them.
• CON: Say on Pay gives RiskMetrics (formerly ISS) even more clout.
• CON: Say on Pay could shield directors from deserved liability.
• PRO: Compensation has not changed for the better.

For Broc’s well-written discourse, click here.

No, there is no typo in this post’s title.

Kudos to Michelle Leder over at Footnoted.org for highlighting this shareholder proposal gem, the first of 17 shareholder proposals listed in Exxon Mobil’s proxy statement:

“Resolved: That the Company amend its bylaws to no longer permit shareholders to submit precatory (non-binding or advisory) proposals for consideration at annual shareholder meetings, unless the board of directors takes specific action to approve submission of such proposals. Stock ownership has become politicized. Many shareholders own stock in publicly-owned corporations in order to use the corporations as a means of advancing the particular shareholders’ social or political agenda. A primary tool of ‘activist’ or ‘nuisance’ shareholders is the submission of non-binding precatory (advisory) proposals for discussion and vote at annual meetings of shareholders.”

To read Michelle’s take, click here.

Blockbuster shareholder Carl Icahn has indicated that he will provide any financing required for Blockbuster to purchase electronics retailer Circuit City.

And Circuit City dissident shareholder Steve Wattles, who is currently waging a proxy fight vs. Circuit City’s management, has told Reuters that any bid above $6/share (representing a 54%+ premium) “looks attractive”.

Meanwhile, Blockbuster’s shares are down 16% in market trading.  King Carl must see something that the market doesn’t.

Jim Kersetter at NewsBlog adds the following insight:

“Apple has around 200 retail stores and can meticulously control what is sold in them and how they are run… By comparison, the combined Blockbuster and Circuit City would have 9,300 retail stores, with 5,500 in the United States (though I have to think more than a few of them would be shut down). Quality control? They’re going to have to bring in a logistics expert from the military for that one.”

Click here to read the full piece.

For a look at the Reuters blurb, click here.

Circuit City, already facing a proxy fight with dissident investor Wattles Capital Management (see prior posts here and here), has received a cash buyout offer from Blockbuster Inc.

According to The WSJ Online, Circuit City’s board received the offer in February and summarily rejected it, doubting Blockbuster’s ability to secure the required financing.

Frustrated with Circuit City’s lack of action (sound familiar?), Blockbuster has gone public with its offer. 

Could we have two competing proxy fights at the same company?  Wattles’ earlier efforts appeared more about controlling the electronics retailer, akin to Wattles’ experience with its portfolio company Ultimate Electronic, and may lead Wattles to compete with both Circuit City’s board and Blockbuster’s offer.

Click here to read Blockbuster’s offer letter, and click here to read Circuity City’s response to the public announcement.

To read more at The WSJ Online, click here.