Icahn's Yahoo bid may set up others

    June 12, 2008
    WebProNews Staff

The big money speculators hovering over Carl Icahn’s pending proxy fight with Yahoo could have other companies in their sights.

Donald G. Margotta, Associate Professor of Finance and Insurance at Northeastern University, shared some views on Yahoo, Microsoft, and the powerful speculators holding an interest in the two tech companies. Icahn entered the fray with the mission of bringing Microsoft back to negotiations with Yahoo, something Microsoft’s Steve Ballmer has publicly rejected doing.

With plenty of profits at stake, the billionaires will likely lobby Ballmer for a change of heart. If you’re wondering what Icahn and T. Boone Pickens have to gain from that, here’s Margotta’s thoughts:

These investors purchased their shares within the last few months at around $28 per share and they are pushing for a sale at around $33. That’s about an 18% return in about 3 months if the deal gets done quickly. If they can do the same thing three more times this year that would be a roughly 70% annualized return.

And, if they bought half the shares on margin (borrowed money) they would raise their annualized return to 140%. So it is in their interest to see these deals done quickly even if Yahoo! does not get as good a price as they have been reported to be seeking.

I don’t think the drafters of corporate laws envisioned the bizarre situation where the interests of the owners might be in conflict with what the directors see as the interests of the corporation.

But shareholders and directors have been at odds before at other companies. Margotta suggested in an email more Yahoo-like situations could arise, where corporate raiders see the best opportunities for quick, rich returns coming from deals like these. Is a Microsoft deal in the best interest of all Yahoo shareholders, even if it enriches Yahoo’s insiders well? And who could be next in the tech world in getting Icahn’s attention?