Reset: What's Next for Yahoo? (Merging With AOL? New Execs?)
When Yahoo holds its first board meeting tomorrow–with three new board members, including shareholder activist Carl Icahn–there will be little time for getting-to-know-you chitty-chat.
In fact, it should be all business for the group, which needs to push the reset button hard for Yahoo.
Definite topics: the progress of talks to buy AOL from Time Warner (TWX)–probably Yahoo’s most attractive option, if it can get a good price–and which are more serious than has been reported; whether the company has any strategic interest in making up with Microsoft (MSFT) after a year of acrimony; how the company can attract new top-level talent to reinvigorate itself; how to make nice with disgruntled major investors; and, of course, how to react to the troubled economy, which is sure to impact the advertising business.
In fact, Yahoo (YHOO) CEO Jerry Yang is acutely aware that he and his management team have only a few months to really show investors and employees that they can get things moving at the beleaguered company.
Oddly enough, the Wall Street meltdown might not be such a bad thing for Yahoo, given that investors have a lot of other bigger problems to worry about now.
In relative terms, with a strong balance sheet, the company is quite healthy compared with many firms.
While a possible recession and subsequent negative impact on the ad market is not a good thing for Yahoo, it is not a good thing for anyone in the space.
And Yahoo remains one of the top players in terms of size and will be the place advertisers flee to in times of uncertainty.
“There is a lot to focus on, so we’re not in the spotlight as much,” said one source at the company. “That gives us a little breathing room.”
Well, a just a little. It is true that major Yahoo shareholders, such as Capital Research & Management’s Gordon Crawford, have more troubled stocks to pay attention to.
But Yahoo should use this time to rebuild badly damaged bridges here, and relations are still tense.
In fact, as was seen in the shareholder vote at the August annual meeting, the patience of investors like Crawford–who saw Yahoo turn down a $31 per share offer from Microsoft and now are living with a $19 price–is paper-thin.
So they will be ill-inclined to support management’s efforts without some effort by Yang and the board to clearly give them a road map to recovery.
(Memo to Jerry: Take Gordy to lunch alone and say sorry a lot.)
That support will be especially important if Yahoo tries to buy AOL, which it is again strongly considering as a way to bolster its ad business, international portfolio and email and content offerings.
Several sources I have spoken to recently have said that Yahoo leadership is very interested in doing such a deal, although not at the $10 billion price tag that Time Warner wants. (Think half and add a little more.)
In addition, there are some daunting regulatory and integration issues–AOL and Yahoo email and messaging combo would be a giant in the space, and the HQs of the companies are on opposite coasts.
But, the deal would give Yahoo some more experienced executives it needs, and make it more attractive to others who might not consider going to Yahoo in its present state.
Yang had been pinging a lot of execs over the last year and has had little uptake.
But a stronger and more flexible Yahoo–i.e., it knows it has to change dramatically–would surely be more enticing, especially in a down economy.
In addition, such a move–which was once opposed by some Yahoo execs–would now be seen as injecting energy in the company.
A Yahoo-AOL combination, however fraught, would still be a powerhouse, which would be bolstered by the 5 percent ownership Google (GOOG) has in AOL and its search partnership with the company.
Of course, that deal would doubtlessly get a lot of scrutiny, especially since Yahoo and Google’s impending ad-search deal is under pressure too.
And, obviously, the troika would get a lot of flak from Microsoft, which lost it takeover battle with Yahoo and has been engaged in a shooting match with Google on many fronts.
But some at Yahoo think a combo with AOL would give it a better chance to consider strategic partnerships with Microsoft too.
“A stronger Yahoo has more leverage with Microsoft,” said one source. “A lot of people think that it is not out of the question to restart a relationship with them when things settle down.”
Indeed not, although all this will require perfect execution on the part of Yang and Yahoo leadership, which has been sorely lacking over the last year.
But recent open initiatives and a focus on getting new products out the door are promising signs, as well as a sense that Web 2.0 companies that have made Yahoo look like a digital senior citizen are under pressure to perform financially, as Yahoo already does.
In other words, Yahoo has the chance to pull itself out of the fire–and, one hopes, not back into the frying pan.