DealZone

Bunch of Yahoos

A string of Yahoo sales, engineering and product executives took the stage on Wednesday in the company’s first full-day briefing with analysts since May 2006, all with a mantra that came down from on high: “Today is the beginning of a journey back to respect,” said CEO Carol Bartz.

With page views increasing, Carl Icahn having drawn in his horns, and the company extending a deadline for finalizing a search agreement with Microsoft, the time was right for a love-in.

Finance Chief Tim Morse said Yahoo expects to achieve operating margins between 15 percent and 20 percent by 2012. After the third quarter’s “pathetic” 6 percent, shareholders would certainly consider that a more respectful performance.

Another way to show their respect would have been to give specific details on the engineering involved in the promised prestige. Executives said Yahoo would achieve the new margin targets by accelerating its revenue in the next few years, but demurred from providing a specific revenue growth target.

The company said it would invest in editorial staff to produce more original features, and tweak its online products to keep users on the site longer and boost advertising revenue.

Yahoo redo

Microsoft and Yahoo finally tied a knot, but not the knot that Yahoo shareholders have long yearned for. The new-economy giants inked a 10-year Web search deal in a bid to take on Google. Google shares barely budged but Yahoo’s sank more than 6 percent as the deal stopped short of combining display advertising businesses.

Back when this deal was all the rage, it was a story of egos. Then Yahoo CEO Jerry Yang was ultimately thrown out for not getting a deal done. Veteran agitator Carl Icahn was in top form, blasting Yahoo from the Street. Now under the new management of Carol Bartz, expectations were slowly rising that a broader deal might get done.

The question now is whether the market that had for so long hoped for a big deal will see this one as at least a step in the right direction.

Unfriendly deals are up this year

Broadcom’s tender offer for Emulex shares may be techland’s first hostile deal this year, but unwanted moves seem to be fairly popular across the rest of the M&A landscape. At any rate, more popular than last year.

This year, 30 percent of all deals involving U.S. public companies have been “unfriendly,” compared with 21 percent in the same period last year, according to FactSet MergerMetrics data. In absolute numbers, there were more such deals last year (23) than this year (18).

In its definition of “unfriendly” deals, FactSet includes both unsolicited offers, in which “the acquirer has publicly disclosed its offer to acquire the target,” and hostile deals, in which “the target’s board has formally rejected the unsolicited offer and the acquirer has continued to try and get control of the target.”

Sun sets for IBM bid

USA/If the Sun-IBM deal is truly dead, and Sun’s reported abandonment of talks is not brinkmanship, then the maker of Java multimedia software could end up with all the kick and excitement of yesterday’s decaf. Among the reasons cited by Sun for walking away, according to The Wall Street Journal, was IBM’s failure to guarantee it would go through with a deal in the face of regulatory challenges. With the mauling courtroom battles that have bloodied the M&A landscape of the last couple of years, it’s not hard to see why Sun would push for such protection.

But if it turns out Sun also played hard to get over price, which seems more likely, Sun may find itself in Yahooland before too long, with a share price in the tank and alternative deals drawing the kind of regulatory scrutiny that Sun says it is trying to guard against.

Sun was said to be unhappy with IBM’s offer of $9.40 per share, which was a premium of up to 89 percent on Sun’s shares before deal talks were first reported last month. Deals getting done these days are far less juicy, and as Peter Falvey, technology banker at Revolution Partners, tells us, Sun is coming out of this looking a lot less sexy than it might have. “Sun is now sort of damaged goods,” he said. “If IBM got under the covers and didn’t like what they saw, then what does that mean for other potential buyers?”

Chief Yahoo

Back in July, when Microsoft walked away from Yahoo, conspiracy theorists surmised that the software giant would eventually come back to bid again at half the price. The Chief Yahoo – that’s the title Jerry Yang is reclaiming after saying last night he would step down as CEO – is no longer in a position to block a deal, so it’s fair to assume Microsoft and its bulging mound of cash could return for another bite. 
 
Yang has been talking with the board, which includes activist investor Carl Icahn, about stepping down since before Google pulled out of a search advertising deal with his company earlier this month, according to a person familiar with the talks. 
 
Yahoo’s share price jumped after the news on Yang. That could just be relief that he is going, or it could be renewed hope of a deal. So a dealmaker could take the reins of the Internet company, which has already seen great swaths of its brain trust flee in the months since the initial Microsoft bid failed. 
 
A source said the process of finding a successor to Yang could take anywhere from four to 12 weeks, and analysts have suggested a star-studded cast of candidates, including former AOL chief Jon Miller, News Corp President and Chief Operating Officer Peter Chernin, former eBay Chief Executive Meg Whitman, former Yahoo COO Dan Rosensweig, and Yahoo President Sue Decker.
  Will Microsoft formally announce an offer for Yahoo?

Deals of the day:
* French warplane maker Dassault Aviation is in exclusive talks with Alcatel-Lucent to buy the telecoms equipment maker’s 20.8 percent stake in radar maker Thales for about 1.52 billion euros ($1.92 billion).
 
* Britain’s Carphone Warehouse may split off its telecoms arm to focus on its retail venture with U.S. group Best Buy, it said as it warned of tough trading. 
 
* British publishing and exhibitions group United Business Media, which abandoned a planned merger with UK peer Informa earlier this year, said it was buying Xinhua PR Newswire, China’s largest corporate announcement service, for $6 million in cash.

Ego Masochist

“People who know me know I don’t have an ego about remaining independent versus not remaining independent,” Yahoo chief Jerry Yang told the Web 2.0 Summit. That’s a good thing because rejection is starting to become a refrain for the Internet company. 
 
Yang must be pumped by Yahoo’s share price, which surged after a rumor posted on a blog said the company was in advanced talks to sell itself to Microsoft for $17 to $19 a share. But the blog also reported that Yang would step down as CEO. Yahoo officials later said the report was untrue, but before the open this morning Yahoo shares were still climbing.
 
Google ditched a search advertising partnership with Yahoo this week. News Corp said on its earnings call yesterday that talked-about talks with Yahoo were not happening. Microsoft walked away from a deal to buy the company in May. Yang declined to comment on Yahoo’s discussions with Time Warner about buying AOL. Failure of that deal could at least give him a chance to jilt somebody, for a change.
    
Yang says he is still open to selling to Microsoft at the right price. The question is whether the price will be as resilient as his ego.  
 
Deals of the day:
 
* Malaysia’s CIMB Bank will make an offer to buy in the market the 57.87 percent of Thai lender BankThai that it does not already own and the price is expected to be 2.10 baht per share, BankThai said.
 
* Vodafone, the world’s biggest mobile phone group by revenue, has succeeded in its bid to take control of South Africa’s biggest mobile phone operator, Vodacom Group. 
 
* Kuwait’s Mobile Telecommunications said it planned to make four to five acquisitions worth up to $4 billion before 2010 after a global credit crisis depressed asset prices for telecom firms. 
 
* North American brewer Molson Coors Brewing has emerged as holder of a 5 percent stake in Australian brewer Foster’s Group, giving it a seat at the bar amid persistent takeover talk. 
 
* Swiss bank UBS bought a minority stake in Governance Metrics International, a research advisory company specializing in corporate governance. 
 
* Russian oil major LUKOIL and Italian refiner ERG will finalize a 1.35 billion euro ($1.74 billion) deal allowing LUKOIL to break into the western European refining business, industry sources told Reuters. 
 
* British property developer and investment company Westcity said it was pulling out of the Kenny Heights mixed residential and retail development project in Kuala Lumpur, Malaysia. 
 
* Property investment and development company Town Centre Securities said it sold its 50 percent interest in a joint venture to its partner, Q-Park Ltd, for 8.7 million pounds ($13.80 million) in cash. 
 
* Dublin-based Changingworlds, a mobile phone services firm that counts Vodafone and Sprint among its customers, said it had been bought by New York-listed Amdocs for $60 million. 
 
* Susanne Klatten, Germany’s richest woman, offered to buy the rest of Altana in a deal worth 910 million euros ($1.17 billion) as the specialty chemicals maker dampened its 2008 outlook.

Yahoo’s deal with Google: Band-Aid

So Yahoo and Google scaled back the terms of their search advertising deal in what looks like a last-ditch, attempt — at least for Yahoo — to get it past U.S. regulators.

Some analysts called it the Band-Aid deal, while others said it smacks of desperation.

Frost & Sullivan’s digital media global director Mukul Krishna said the revised terms were “more of a Band-Aid than the extensive surgery” Yahoo needs.

Getting online in Europe

A man browses web at an Internet cafe in MadridWith tens of billions in the bank collecting dust since its failed bid for Yahoo, and the elusive promise of the Internet still beckoning, Microsoft returned to the market for Internet search businesses with a $486 million purchase of Greenfield Online, the U.S.-listed owner of European price comparison website ciao.com. The buy is meant to help lift Microsoft out of fifth place in the European search market by giving a boost to its Live Search platform. Google‘s monster lead in the search market is a whopping 62 percent and 79 percent in Europe, according to the most recent data published by Web usage tracker ComScore. Microsoft has a 2 percent market share in Europe and 9 percent worldwide, behind both Google and Yahoo. In Europe, Microsoft is also outranked by online auction site eBay and Russia’s Yandex.

Four large hedge funds, all Huntsman shareholders, have proposed a plan to finance at least $500 million of the $6.5 billion buyout of the chemical company by a unit of Apollo Global Management. Hedge funds Citadel Investment Group, D.E. Shaw & Co, MatlinPatterson Global Advisers and Pentwater Growth Fund, and as of this morning, the Huntsman family, have agreed to team up on the financing plan, but Apollo’s Hexion Specialty Chemicals unit rejected the plan last night, saying Huntsman’s increased debt and decreased earnings since the deal was struck in July 2007 would no longer make a combined company solvent. “We are not seeking to renegotiate this transaction,” Hexion responded in a statement. “We are seeking to terminate it, and obtain judicial confirmation that Hexion has no obligation to pursue the acquisition or to pay Huntsman a termination fee.”

Allianz is set to sell Dresdner Bank to Commerzbank, sources with direct knowledge of the matter say, in a deal that will fuse Germany’s second- and third-biggest lenders. The deal, to be announced as soon as this weekend, will see Commerzbank take a 51 percent stake in Dresdner and buy the rest later, the sources said. Taking over Dresdner, which analysts estimate to be worth about 9 billion euros ($13 billion), will create a group to rival flagship lender Deutsche Bank and change the face of banking in Germany, Europe’s biggest economy. It will give Commerzbank a badly needed leg up in its home market, which is dominated by state not-for-profit lenders and allow Allianz to end an unhappy marriage that unsuccessfully tried to match investment bankers with insurance salesmen. The deal is likely to result in heavy job cuts, which would have been avoided had Allianz chosen to sell to another would-be buyer, China Development Bank.

Calm waters run deep

Jerry YangYahoo’s Gerry Yang may have thought that giving Carl Icahn a board seat would calm the roiling waters that threatened to pull the chief executive under. But a recount of the vote for its board revealed a strong protest vote against five of nine directors, including Yang. The Internet company said revised vote tallies showed 33.7 percent of votes withheld for Yang, the company’s co-founder. That’s more than twice the opposition to his reappointment to the board as in the disputed first count. Yang has been under pressure for months over failed attempts by Microsoft Corp to buy Yahoo and over questions about his leadership. Analysts were split over whether the recount, while potentially emboldening for critics, was a symbolic embarrassment to the leadership or a new threat to its power. Ahead of the Aug. 1 meeting, Yahoo settled a proxy fight with Icahn, giving the billionaire investor and two members of his proposed slate seats on an expanded board of 11 members instead of the previous nine.

Austrian oil and gas group OMV has called off its unsolicited $23 billion bid offer for Hungarian rival MOL, saying European Union restrictions were too tough to make the deal worthwhile. The move ends an acrimonious year-long standoff between the companies that had begun to irritate some investors and weighed on OMV’s share price. The stock rose nearly 8 percent to a three-week high of 45.60 euros on relief a deal was off. “It was a bad strategic move to make an offer, so this should just narrow the situation,” said Erste Bank analyst Jakub Zidon.

And here’s one from the unwanted advances department: Acquisitive miner XstrataLonmin, unveiled a $10 billion takeover bid for the world’s third-biggest platinum producer, to diversify its business from industrial metals such as copper. South Africa-focused Lonmin swiftly rejected the bid as its shares soared 51 percent to a high of 35 pounds on Wednesday, slightly over Xstrata’s planned offer of 33 pounds a share. Lonmin – and this perhaps is no big surprise — rejected the bid as undervaluing the firm.

Bill Gates the activist?

gates1.jpgTech titan Bill Gates appears to be making the transition from head of the biggest software company in the world to a man comfortable taking out the trash. His investment company, BGI, which owns 2.3 percent of Waste Management, is telling the company its unsolicited $6.2 billion bid for Republic Services is ill-advised and that it should walk away. While his investment vehicles have stakes in dozens of companies, they have kept low profiles over the years and Gates has not traditionally been known as an activist investor. But BGI didn’t mince words in its letter to Waste Management’s CEO and board, disclosed on Thursday. “We can only assume your ill-timed and poorly conceived pursuit of Republic is designed to disrupt what you perceive as a competitive threat to your position in the market,” wrote BGI. “An acquisition of Republic will most certainly burden the company with excessive debt, distract your management, result in significant regulatory burdens, and thereby reduce shareholder value,” it said.

Yahoo‘s annual investor meeting today will be a magnet for discontent over the company’s failure to reach a merger deal with Microsoft and complaints about the company’s past performance. But any real action to reshape Yahoo’s course is likely to take place only after the meeting, once activist investor Carl Icahn and two outside nominees join an expanded 11-member board as part of a deal with the company to avoid a proxy battle. Far from a showdown over control of Yahoo, the annual meeting has the makings of a noisy media circus where the issue of whether Yahoo should remain independent or not competes with older protests over executive pay and human rights policies. For while the exercise of shareholder democracy will allow investors small and large to vent over what might have been, the outraged speeches are likely to have only symbolic effects since Icahn withdrew his overt challenge to Yahoo’s board. “I am sure that Yahoo management will take a verbal beating,” Jim Friedland, an analyst Cowen & Co, said. “I just don’t think that the annual meeting is where the debate over Yahoo strategy is going to take place.” In a blog post on Thursday, Icahn downplayed the importance of the event, saying he plans to skip the meeting himself.

Spanish solar power company Fotowatio said that General Electric‘s Energy Financial Services unit had bought 32 percent of the company for 150 million euros ($233.5 million). Grupo Corporativo Landon — a holding company for the Gallardo family, which owns Barcelona-based pharmaceutical group Almirall — also bought a 17.5 percent stake for 75 million euros, the company added in a statement. Fotowatio said that together with its new partners, it had earmarked 2.5 billion euros to invest by 2012 in photovoltaic and thermosolar plants in Spain, Italy, the United States, and other countries. Currently, the company has four installations, with a total installed capacity of 60 megawatts, which it plans to expand to 800 MW by 2012. Photovoltaic (PV) power has boomed in recent years in Spain due to generous government subsidies, but these will be slashed next year.