Jerry Yang has taken a lot of heat for rebuffing Microsoft and and Carl Icahn. He has been repeatedly called on the carpet for not looking out for the interests of shareholders.
The attitude of many critics is that it is management's sole responsibility to deliver cash to shareholders and that any buyout offer for a reasonable amount of money is good enough.
Yang claimed that Microsoft was undervaluing Yahoo! and held out for a higher price. Thus began the volleys back and forth between the two companies as talks broke down and started up again and alternative deals were proposed. Then Icahn jumped in, fresh from the debacle at Motorola, thinking that all he had to do was show up and Yahoo! would capitulate to Ballmer.
Yang was right to fend off these two.
Ballmer proposing to buy just the search business of Yahoo! as a variation of the original deal illustrates how clueless he is. Google is the dominant player in search and delivers by far the best search experience. Google is also the best by far at monetizing search. Why tilt at that windmill? Neither Yahoo! nor Microsoft come close to Google in search in terms of functionality or traffic. Why Microsoft values Yahoo! search is a mystery.
What Yahoo! does have is content. Yahoo! is truly a major destination on the Internet and Yang's ideas of making the site the starting point for the Internet's users is not as farfetched as Ballmer's idea of besting Google at search. With all the content at Yahoo! comes a significant amount of display advertising. Yet the content is not what Ballmer wanted!
Then we have Icahn. No plan other than to sell the company to a clueless Ballmer. Together, the two of them take cluelessness to a new level.
What would have happened to Yahoo! as part of Microsoft? Probably continued brain drain, atrophy of many aspects of the business, continued also-ran status of the search capability, reduced revenue from display advertising as content withers away, a setback for Yahoo!'s openness initiatives and who knows what else.
So is it management's duty to accept any offer that exceeds the current stock price? Or is it management's duty to do what is best for the company itself? I suspect that Yang couldn't stand thinking of how Ballmer would most likely squander the assets of Yahoo! Keeping Yahoo! independent at least gives the company an opportunity to get growth back on track on its own terms.
Nevertheless, Yang should indeed have taken Microsoft's offer to buy the search business. Get rid of search and let Microsoft distract themselves trying to beat Google. This would have allowed Yahoo! to concentrate on monetizing its content. With page views up 20% over the previous year and solid partnerships with major advertisers, that seems the path of least resistance. Yahoo! can always outsource search to Google and point to Microsoft to show that competition still exists in the search space.
So with Icahn now on the board at Yahoo!, maybe he can learn a little about how an Internet business works and provide some kind of value. And given a little breathing room, maybe Yang can reinvigorate Yahoo! and the shareholders will ultimately benefit after all.