Hostile Takeover Tutorial

Ning chairman Marc Andreessen gives a great summary of the alternatives available if Microsoft decides to take their takeover offer of Yahoo into hostile territory.

One of the great options present to a highly successful entrepreneur like Mr. Andreessen (Netscape, Opsware) is that you can ask your favorite lawyers to work up a summary on a legal issue just for the fun of it.

He did just that, using Michael Sullivan and Ed Deibert of Howard Rice Nemerovski Canady Falk and Rabkin. They see these scenarios:

- Hostile Takeover: Microsoft moves forward with a full-fledged hostile takeover — trying to replace Yahoo’s board and/or taking its offer directly to Yahoo’s shareholders.

- Higher Offer: Microsoft raises its offer or otherwise modifies its offer terms to make them more attractive — for example, Microsoft could shift to an all-cash offer — in an attempt to make the deal happen without going fully hostile.

- Walk Away: Microsoft drops its offer and walks away; Yahoo’s stock drops to its pre-offer level of $19.18, give or take. Lots of moves and countermoves could follow: Microsoft could come back later with a lower or higher offer; Yahoo could cut a Google advertising deal to boost its revenue and margins and make itself harder to buy; Microsoft could take its $44 billion and go buy virtually every new Internet company of any consequence founded in the last 10 years; etc.

- Yahoo Caves: Yahoo’s board caves and accepts the current Microsoft offer.

- White Knight: Another bidder enters and offers Yahoo a higher price.

From a transactional fan standpoint, it’s great sport to watch a large deal that might go hostile. When I was in law school, it was the heyday of the early 1980s deal frenzy. My favorite strategy, which was playing out in real time in my Corporate Securities class: the Pac-Man defense. This one, not that one.