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Friday, June 13, 2008

The soap opera finale: Yahoo, Microsoft, Carl Icahn and Us

As I had expected, Yahoo's management continued to drag its feet and finally succeeded in turning Microsoft away. Not only the deal talks with Microsoft have ended but Yahoo went ahead to partner with its arch rival, Google. Seems, ultimately Google ended up being the primary beneficiary of Yahoo-Microsoft-Carl Icahn soap opera. Of course, the management of Yahoo will be another major beneficiary because of the excellent severance package they have arranged for themselves in the event the company is acquired.

I used to hold Jerry Yang, the founder of Yahoo, in high regard. However, after reading about his continuous foot dragging in trying to prevent Yahoo's takeover, I have realized that he is just another regular selfish executive who thinks his fiduciary responsibility is to act in his own best interests rather than the best interests of the shareholders. However, I strongly believe in the doctrine of you reap what you sow. While Jerry Yang may have bought himself some respite, am sure it's just a matter of time before he is given the boot - when and how, I don't know.

Anyways, as I had mentioned in one of my previous posts, after the Microsoft's initial takeover bid, we set up stop loss on our Yahoo shares and also issued a $35 Jan 2010 covered call option contract. Because of the stop loss order, our Yahoo automatically got sold around $28 when Yahoo's shares started dropping after peaking in the $30s. Considering that Yahoo's shares were trading around $23 yesterday evening, this turned out to be good decision.

On the call options front also, so far, it has turned out to a good decision since the call premiums have dropped due to the drop in Yahoo's shares. While anything can happen between now and Jan 2010, the execution of $35 calls at this point seems slightly far fetched. However, we will be happy if it gets executed b/c that would mean that our shares get sold at $35 which is slightly above our cost basis. If not, the call premium is ours to pocket. So either way, it worked out well for us.

For related posts, see:

I love you not

Lessons from the Yahoo-Microsoft merger talks

For related articles, see:

Fortune: Yahoo shuns Microsoft and partners with Google

WSJ: As Microsoft Walks Away, Yahoo Enters Google Ad Pact

AP: Yahoo seeks Google's aid after Microsoft talks die

posted by Ruby @ 1:18 AM

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