Big Business with WorldCom, Microsoft and Yahoo

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The 1st of February of 2008 Yahoo! received an unsolicited $44.6 billion bid from Microsoft to, together, better tackle the industry and compete against Google. Microsoft offered a bid of $31 per share, which was higher than Yahoo!’s closing share price that same day. Yahoo! believed that Microsoft’s offer was “substantially undervaluing the brand, audience, investments, and growth prospects”. Yahoo! wanted $37 per share. YHOO’s closing price the day Microsoft placed the bid was $28.38. Soon the public was informed of the unsolicited bid and chances grew of Microsoft and Yahoo joining to become Google’s biggest competitor. As of February 14th, YHOO’s share price had risen to $29.98. The share price had been increasing daily as more individuals were highly interested in buying YHOO stock. As more people wanted to buy YHOO stock, it became more valuable.

After the bid was received, Yahoo! rejected the unsolicited bid as it did not meet their expectations. Microsoft then upped the bid to $33 per share, which raised the offer by $5 billion. However, Yahoo! still felt that it undervalued the entire company, so they rejected the offer again. This was followed by a set of events that would result in YHOO’s share price to decrease. The decision to reject Microsoft’s offer was agreed upon by Yahoo!’s Board of Directors. The first time Microsoft decided to withdraw its offer was May 5th that same year. As a result, YHOO’s shares dropped to $23.05 at opening price and closed at $24.37 as nobody wanted to buy the shares and many wanted to sell. Several days after the withdrawal was made public, some shareholders initiated a proxy fight with Carl Icahn leading the group. The billionaire investor believed that the Board of Directors had n...

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...he communicated this to the Compensation Committee, who then agreed to give him a $50 million loan. They hoped that this would make Ebbers focus solely on managing the company. The Board of Directors were not informed of the loan at the time. These actions are not typical in large firms, as they always have to have the shareholder’s interest in mind. Giving out excessive amounts of money for loans is wasting the shareholder’s money. Ebbers kept on getting loans and guarantees during 1999 and 2002.

The Board members became aware of the $50 million loan but did not protest because the sale of stock would be damaging to the price, they believed that Ebbers could repay the loans and that they were not going to be long-term, and that the company’s stock price could recover fast. They were focusing on trying to manage the stock price rather than the business itself.

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