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September 16, 2009

Clouds Hang Over Yahoo and Carol Bartz

In June this year, Yahoo’s CEO Carol Bartz said the company sold its search business to Microsoft because, according to a New York Times report, “Yahoo could no longer continue to match the level of investment Google and Microsoft were making in searching”, and instead has plans to invest in the company’s display ad, content and mobile services technologies.

However, it is now praying for deliverance from the Justice Department that antitrust regulators approve the deal. There are also reports that the company’s executives are offloading their shares at a time when confidence in the company needs to be bolstered. But the big question is, what would happen to Yahoo if the deal were to be scotched?

Ms Bartz suggested in a bizarre interview that Yahoo isn’t a search engine company and denied it ever was one. She also said that she would have sold the company to Microsoft and, when asked what’s next for Yahoo, unbelievable as it may sound, she replied, “search isn’t what we’re after…I don’t wake up in the morning and say ‘Gosh, what am I going to search?’ That’s not what I do. I wake up and say, ‘What’s happening?’ And that’s really what Yahoo is. We really want to be the centre of peoples’ online lives.”

While it is understandable that Yahoo could no longer continue to fund search at the levels of Google and Microsoft, the Microsoft-Yahoo deal has stalled. According to Yahoo’s financial news site, US antitrust regulators have “requested more documents” in their probe of the Microsoft deal to provide search engine technology to Yahoo, with experts expecting it to get “close scrutiny from regulators”, but concluded it should eventually be approved but that it will take months.

Although these antitrust problems exist, Microsoft says that it is confident in its ability to persuade the regulators that more competition in the market is a good thing and that this deal will ensure that its race to catch up with Google has the “best interests of the market”.

Perhaps the deal is not so much in doubt, but what would happen if the antitrust regulators fail to approve the move? It would simply leave Yahoo, and particularly Ms Bartz, between a rock and a hard place with no alternative in place.

On the face of it, Justice Department interest in the deal is somewhat strange in that a merger of two companies’ technologies to compete with the market leader doesn’t really smack of antitrust. But perhaps the regulators just want to further the probe into the effects on advertisers? Anyway, some analysts believe the Justice Department will force both companies to put Yahoo’s search technology assets up for auction in order for the deal to go through.

Microsoft and Yahoo representatives have also said they were hopeful that the deal to challenge Google would close early next year, but with Google’s search market share as much as 65% of the US market and up to 90% internationally, and with Yahoo’s about 19% in the US, the deal has a long way to go yet before it makes any real impact.

The antitrust probe is not the only problem affecting the company: executives are also offloading shares. With the furore about antitrust and Yahoo’s business model, it is claimed that Carol Bartz and other Yahoo’s executives have sold out their shares. Ms Bartz sold $830,000 of Yahoo stock in March and a further $1.4m in June, or 46% of her share options, for almost $2 million.

All this comes on top of reports that Ms Bartz fired off an angry internal memo after it was disclosed that Yahoo shareholder Carl Icahn sold 12 million shares in the company. In the memo she told employees to “get out of the sugar low – we have work to do. Stop staring at our navels, stop arguing with each other. Stop debate, debate, debate, and let’s focus on the competition.”

And it’s not just Carol Bartz and Carl Icahn who are selling Yahoo shares. General Manager Mike Callahan also sold $1.35 million in shares the past year. As Yahoo investor Eric Jackson of Ironfire Capital remarked: “Two million already cashed out for Bartz is too much, too soon.” He added, “it doesn’t really fit with her ‘I didn’t need this job as I was retired’ image she portrays”.

Yahoo’s response was that Ms Bartz needed the money to pay a hefty tax bill. So, instead of building confidence in the company at this vital time and holding on to stock, Yahoo’s shareholders get to pay her taxes. But whatever rationale is attached to all this, it doesn’t exactly make Yahoo look like a very attractive investment at the moment.

The sale of these shares alone may well have left Yahoo’s investors wondering about Carol Bartz’s long-term loyalty and whether she still believes in the company. Maybe she cashed in her shares before the share price dips too low? Maybe other major shareholders will follow suit if Yahoo struggles and fails to turn its profitability around?

When you take a look at Yahoo’s finances, they are not looking that great. The Guardian recently published, “In its latest financial results, the company said that revenue for the past three months was down 13% from the same period last year to $1.5bn, while profit rose slightly to $141m…Bartz’s influence appears to have had little impact on the company’s bottom line so far…”

But doesn’t this sound all too familiar? With the banks now back to the bonus culture, commented on Yahoo’s executives, “…Every director and officer there seems to have a congenital affliction that is forcing them to withdraw as much compensation as they can from the shareholders…As a casual observer, I’m simply galled at this pigs-at-the-trough behaviour.”

All this negative press must have Google ready to roll out the tanks if Yahoo shows any further signs of tripping over its own bootlaces. Unlikely, but should this merger be blocked, what would become of the search engine company that doesn’t do search?

John Sylvester is the media director of V9 Design & Buil ( and an expert in search engine optimization and web marketing strategies.