TEXT OF INTERVIEW
KAI RYSSDAL: If the New York Times is to be believed, this week could bring the next step in Microsoft’s bid for Yahoo. The paper says Microsoft is set to launch a proxy fight and win control that way. Yahoo’s board rejected the offer from Microsoft CEO Steve Ballmer a couple of weeks ago. Rather than try to decipher some obscure Securities and Exchange Commission filing to figure out how it all might play out, we’ve decided to do things the easy way, and we’ve called James Brock at Miami University of Ohio. He teaches mergers and acquisitions there. Professor Brock, good to have you with us.
JAMES BROCK: Good to talk with you.
RYSSDAL: What exactly does it mean when a company says it’s going to launch a proxy fight?
BROCK: Well it means that it’s going to go around the management of a company, and appeal directly to the shareholders to sell to the firm that wants to acquire them, typically against the wishes of the management.
RYSSDAL: Alright, well let’s say I hold some Yahoo stock, and Microsoft comes knocking on my door. What are they going to do for me?
BROCK: Well, they are going to try to persuade you that you will be financially better off if you sell your stock to Microsoft at the price they’re offering, than if you hang on to it. In other words, they’re going to claim, you get your money now, and you’re going to get more money now than you would if you just hung on and stuck with Yahoo.
RYSSDAL: The initial offer price was $31 a share. Could I expect to see a bump in that?
BROCK: You might well. You might well, because they have to go against the headwind of the opposition of Yahoo’s management, so they might try to sweeten the offer a little bit for the stockholders.
RYSSDAL: What’s Yahoo management’s counter going to be to me? Are they going to come to me with a mailing that says, listen, we’re going to increase your stock price by doing x, y and z?
BROCK: That’s essentially what they would do. They would make the opposite argument, that you will be better off if you sit with us and stay where you are, rather than sell out to Microsoft, and sometimes firms will even promise a little bit extra dividend to try to sweeten the pot.
RYSSDAL: If I’m a disgruntled Yahoo shareholder though, all I’m going to do is look back and say, yeah, but the share price so far isn’t doing so well, which is part of why you got in trouble in the first place.
BROCK: And then you would take the offer from Microsoft and be a happy fellow.
RYSSDAL: That’s right. Now, do these kinds of appeals directly to shareholders typically work?
BROCK: It depends. It depends on Yahoo and what it’s been doing, and what people think its prospects are under the management that exists. It also depends on how concentrated ownership of shares is in some institutions that may own large blocks of shares in Yahoo and how amenable they are to selling out.
RYSSDAL: Yeah, that’s an interesting point actually. Large institutional shareholders, it would seem to me, would have a greater say than somebody just with a couple of hundred Yahoo shares.
BROCK: Absolutely, and that would be who Microsoft would really concentrate on persuading to sell.
RYSSDAL: Can they wrap this up then by going to a couple of mutual funds and proxy firms, and doing it that way?
BROCK: Well it’ll probably be more than a couple. I don’t have any idea what the ownership of Yahoo stock is, but they would certainly concentrate on large block owners and give them a great deal of attention, yeah.
RYSSDAL: Does this possible proxy fight, because it hasn’t really been announced yet, does it denote that Microsoft is really serious about this? I mean it’s not cheap to do all this stuff.
BROCK: No it’s not, and Microsoft is not living hand-to-mouth either, so they certainly have the resources to launch this kind of battle. So if they are this determined, they certainly have the financial wherewithal to make a run of it.
RYSSDAL: James Brock is a professor of economics at Miami University in Oxford, Ohio. Professor Brock, thanks for your time.
BROCK: Thank you very much.
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