Thursday, May 15, 2008

Microhoo? Not Again.

I don't know if Carl Icahn uses Internet. Or ever used it. Judging by board he nominated, he doesn't understand Internet business at all. Only Mark Cuban has some (very limited) understanding of Internet business. There are several people from entertainment business. Yeah, right, just what Yahoo! needs. It's less than a year since they got rid of their own CEO from entertainment industry.

I'm afraid Yahoo! might be much bigger problem for Icahn than Motorola. There Icahn found out that you need to have a backup plan. Initial idea was OK: sell the cellphone business. After long fight, board changes he's got board agreement. Small problem: no buyers. Now Icahn is up to his ass in alligators. Let's assume he's got his board at Yahoo! Yang and Filo, understandably, quit. Then Icahn finds out that Microsoft is not interested. Now what? Where dear Carl finds people to head Yahoo!? There are currently exactly four big international Internet companies, which are profitable: Yahoo!, Google, Ebay and Amazon. Only Google has somewhat similar business model. So who is going to be CEO? Les Moonves?

Why Microsoft might be interested? They have two goals: Improve abysmal performance of MSN or kill Yahoo!, second biggest competitor in the Internet. Sure they are ready to pay 47 billion for MSN improvement, but to kill Yahoo!? I highly doubt it, even though it would be final result of Microhoo anyway. Ballmer walked out because, by rumors, someone said to him: those guys are going to burn furniture. Of course, it's not about furniture, it's about people and knowhow. And you can't just buy it. And that's why Yang and Filo are so powerful at Yahoo! They are Chief Yahoos, both by table of organization and by Yahoo!'s history. Without them, Yahoo! costs much less, no matter what Jim Cramer, Mad Money guys, Carl Icahn et al think. Yahoo! balance sheet reflects it perfectly: 1.36 billion of hard assets and 4.81 billion of goodwill plus intangibles. I wonder how much Yang and Filo represent in intangibles?

There is some speculation in press that Icahn was somewhat encouraged by Microsoft. That might be the perfect coup: make Icahn to kill Yahoo! and pretend that MSFT has nothing to do with it. Not the first case, remember SCO (SCOXQ.PK)? The easiest short I ever missed... Paul Allen was one of investors in it when that UNIX/Linux intellectual property fight broke in. Lots of investors lost money there. Icahn, Paulson, read about it. Now. Before it's too late.

Full disclosure: at the time of publication author had long positions in Ebay and Google. Author doesn't have any positions in other companies mentioned in this article. Positions can change any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

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