MicroHoo: History Lesson No. 1– Time Warner Tries to Buy Yahoo
While we are waiting for the season finale of the Microsoft-AOL-Yahoo takeover–too bad we can’t blame the writers’ strike for the lugubrious pace of this deal–BoomTown will take you back in time to equally edge-of-your-seat times in Internet history in a series of surprisingly familiar stories.
Eerily familiar, in fact!
As you might imagine, while everyone is caught up in the current merger mania, there were a lot of previous hot-and-bothered moments now lost in the mists of time.
Did you know, for example, that AOL’s Ted Leonsis once made a $2 million bid for Yahoo (YHOO), early on? “Since there were two of them,” said Leonis to me once, referring to Yahoo Co-Founders Jerry Yang and David Filo, “I thought each should get $1 million.”
While that was kind of kooky, this excerpt from my second book on AOL, titled “There Must Be a Pony in Here Somewhere: The AOL-Time Warner Debacle and the Quest for the Digital Future,” was much more serious.
At the time, late in 1999, Time Warner’s former CEO Jerry Levin was locked in difficult negotiations with AOL’s CEO Steve Case. When they reached a standstill, AOL seriously pondered acquiring eBay, while Time Warner (TWX) went looking for a link-up with Yahoo:
Here’s the excerpt from a section in the fourth chapter:
IF YOU CAN’T BE WITH THE ONE YOU LOVE
AOL and Time Warner wasted no time in trying to find alternatives to each other, scouring for as big a blockbuster as they could find across the interactive landscape.
Both were serious, but each also needed a stalking horse that might shake the other up enough to get back to the bargaining table.
Time Warner quickly turned to Yahoo.
Levin had met and been deeply impressed with a very young Jerry Yang, one of the co-founders of Yahoo, the spectacularly successful Internet directory and portal.
With the biggest Web audience, Yahoo had become a powerhouse, and it had done so with little of the rough behavior AOL was so well known for.
Its valuation had headed skyward too, making Yang a multi-billionaire in his first job after leaving college.
Yahoo was also, unlike most Internet companies, admirably profitable.
I had called Yang as soon as I got to California in 1997.
Aside from Amazon’s Jeff Bezos, eBay’s Meg Whitman and Real Network’s Rob Glaser, Yang was the Web icon most central to the whole boom.
He was also a pretty nice person—well spoken, courteous and with a reputation for being very easy to deal with.
He wasn’t always, though, and I often found myself engaged in little debates with him on whatever trend was sweeping across the landscape.
We almost always disagreed, and he liked to make little digs: “Kara, The Wall Street Journal’s circulation hasn’t grown in, like, a million years.”
But his were the kind of low-level obnoxious comments you’d hear from a brother. I hate to admit it, mostly because he would mock me, but I liked him a lot.
So did Levin. So he sent [CFO Rich] Bressler to meet with Yang and the Yahoo leadership, which included CEO Tim Koogle and his No. 2, Jeff Mallett.
The two sides had several meetings in late November and early December, according to those familiar with the talks, about what the companies could do together and how both sides saw the world evolving.
But Bressler was coy, and if he had a bigger idea the Yahoo team was hard pressed to figure it out.
“He was not specific at all,” one Yahoo executive told me. “We huddled and asked ourselves, ‘Are they serious, or are they just fishing?'”
The Yahoo team was torn, since they too were worried about the valuations and wondered if they could survive without a big media partner.
They also wanted to stay independent if possible, and didn’t want to venture so quickly outside the company’s core competency or outside the Net.
Doing a deal, even if meant that Yahoo would grab a major stake, meant selling the company and ending their mission.
Unlike AOL executives, the Yahoo team thought they would surely get lost in the shuffle, and that they were ill-suited to try to run a complex media company.
They were also dubious that old and new media were really natural partners.
“We were less grand in our approach,” said another executive. “And we were a fast-growing company, so we weren’t so sure we wanted to go slower.”
Time Warner was also reticent, because of the high valuation and also because Yahoo didn’t have a huge base of paying subscribers like AOL.
Being totally ad-supported, Yahoo was a much riskier proposition for Time Warner.
And soon enough, Levin would be put off by the same whiff of arrogance from the Yahoos that he’d picked up from Case.
At a dinner with Yang and Mallett at the elegant Upper East Side French bistro Le Refuge in Manhattan, Levin started lecturing the pair on Yahoo’s inflated currency, asking how its business was sustainable.
Mallett, unfamiliar with the subtleties of the media world dance and frustrated by Levin’s cryptic nature, shot back quickly and arrogantly.
“Why are you peppering us about our business when you’re the ones without any growth?” he snapped, then uttered the most annoying Web mantra of the era: “You just don’t get it.”
The remark, more confrontational than it needed to be, made Levin cringe. A few more meetings did take place, but the Yahoo option was pretty much off the table.