Capital markets are proxy-fight friendly: Part I
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.
