Jerry Yang's Blunder - Worst Business Decision Ever?

by: Joel West November 30, 2008 | about stocks: YHOO    

Joel West

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This week, Carl Icahn doubled down on Yahoo, adding 6.8 million shares (at $9.88 per share) to go with the 69 million he bought earlier at $25/share. Some see this as a positive sign, but increasing his stake by 10% (and net investment by 4%) seems a very weak endorsement of the company‘s future. Others speculate that he wants to influence the choice of top Yahoo to replace soon-to-be-former CEO Jerry Yang, the man who turned down Microsoft’s $31/share offer.

Earlier this week, Merc columnist Mike Cassidy wondered whether Yang’s blunder counted as the “worst business decision ever.” I might have voted for worst decision of the year, but ever?

Cassidy got an earful from his readers, who suggested a range of other mistakes:

  • Big Three automakers: for killing the EV1, making gas guzzlers “nobody wanted to buy”, and taking their private jets to beg for a bailout. Comment: Not even close.
  • Xerox PARC for fumbling the future. Comment: Top 25 but not top 5.
  • WebVan and the other dot-com fools. Comment: I was tempted to list these in the top 5, but then many of the founders dumped their soon-to-be-worthless shares on greater fools and now live in Atherton or Saratoga — so who made the mistake here?

I’ve got some other nominees. How about all those banks loading up on subprime loans? The decision of GM and Ford a decade ago to plough their cash back into their declining businesses, rather than buy out their (ultimately more profitable) competitors? Railroads passing up the chance to buy airlines 90 years ago?

One guaranteed top 5 pick:

IBM handing control of the PC industry over to Intel and Microsoft in 1980 (a bigger mistake by at least an order of magnitude than Yang’s). Another (as recounted by Al Chandler):

RCA aggressively licensing its color TV patents to obscure, struggling overseas electronics makers; the bottom line was nicely padded by royalty income, until Sony, Panasonic, Toshiba and others drove RCA out of business.

It’s hard to see how a Yahoo acquisition that never happened could touch some of the biggest value-destroying acquisitions of all time. Cassidy’s readers mentioned

Time Warner buying AOL; as with WebVan, it was dumb for the buyer but not for the seller. While this probably destroyed the most market cap, in terms of consequences I’d put

Sprint buying Nextel ahead of Time Warner’s mistake: Time Warner may survive but it’s not clear that Sprint will. (And while we’re on cellular, various firms like PacTel and MCI unloading cellular franchises in the 1980s would also have to qualify as top 25 blunders). Then there’s

MCI buying WorldCom, certainly a purchase that had irreversible consequences.

There’s plenty of material here for teaching undergrads and MBAs. But even if every business student learns these lessons, foolish optimism or unbounded greed will cause some to make ever-greater mistakes down the road.

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This article has 17 comments:

  •  
    Nov 30 08:57 AM
    Maybe not such a blunder... The new yahoo deal looks better than the one they turned down, at least in the long run...
    Reply | Link to Comment
  •  
    Nov 30 09:31 AM
    I would add an Asian top ten with BenQ's purchase of Ericcson's mobile phone business.
    Reply | Link to Comment
  •  
    Nov 30 11:59 AM
    Wachovia buying Golden West, destroying $50Bn mkt cap and wiping what used to be a decent bank off the planet?
    Reply | Link to Comment
  •  
    Nov 30 12:02 PM
    What about the Circuit City CEO who asked for the average salary at each store and in a "cost cutting move" fired everyone making more than the store average. The result: all of the good sales people, loyal employees, and the ones with the most experience were laid off. This led to the Blockbuster no-deal and ultimately bankruptcy. As bad of a decision as Yang made, Yahoo will still exist.
    Reply | Link to Comment
  •  
    Nov 30 12:41 PM
    It is in the top 3 for sure...... but, the auto makers and UAW are about to move ahead of Yang.
    Reply | Link to Comment
  •  
    Nov 30 01:43 PM
    The deal with Google would have been fantastic for Yahoo. I don't think Yang should be held responsible for the horrible decision made by the lawyers at the Justice Dept.
    Reply | Link to Comment
  •  
    Nov 30 01:48 PM
    Unlike Yahoo, the big 3 CEOs come begging for money from taxpayers in their personal jets to pay for their incompetent ability to manage and protect their stakeholders.


    On Nov 30 12:41 PM marketwatchr wrote:

    > It is in the top 3 for sure...... but, the auto makers and UAW are
    > about to move ahead of Yang.
    Reply | Link to Comment
  •  
    Nov 30 04:36 PM
    Adam,

    are you sure that BenQ purchsed Ericsson's mobile phone business?

    In fact it was Siemens' mobile phone business BenQ got from Siemens $700 M to take over (the "buyer" gets here money from the seller). This was a smart deal. Please make some research about that.

    Two weeks ago the German company Solarworld offered GM to take over their German branch Opel provided GM pays them $ 1,3 B fee. The seller pays money to the buyer to get rid of the shit.


    " I would add an Asian top ten with BenQ's purchase of Ericcson's mobile phone business."
    Reply | Link to Comment
  •  
    Nov 30 04:48 PM
    There are far WORSE decisions that were made (at least YHOO is still solvent & somewhat competitive) but it has to rank high on the "shareholder screwed" list when you consider where the stock price is now and what extra value he attempted to foolishly squeeze out of Microsoft. Now they'll likely get taken out at a much lower price and long-term shareholders will hardly make a gain. Here's hoping he never sits on a board or runs a company ever again (failure)
    Reply | Link to Comment
  •  
    Nov 30 11:00 PM
    Sometimes it's important to get your facts straight, particularly if you want to considered an "expert."

    Fact: WorldCom grew largely by acquiring other telecommunications companies, most notably MCI Communications.
    Reply | Link to Comment
  •  
    Dec 01 12:29 AM
    Yang saved Yahoo! and possibly even Microsoft. But this decision also robbed shareholders of a lot of money. No, it's not the worst blunder, not even in top ten.

    By the way, in 1999-2000 there was a lot of talk that Yahoo! market cap cannot possibly be higher than that of GM and Ford combined. It's still higher, and for a good reason.
    Reply | Link to Comment
  •  
    Dec 01 01:53 AM
    I disagree with the premise that business should be all about money. What ever happened to corporate philosophy or business style? I feel the world needs more businesses that believe in what they represent. Not just do anything for a buck, but believe that they can make a difference and represent something different or unique... and in the end make some decent money. Think Apple. I admire Mr. Yang, if he was standing up for his belief that it wouldn't be a good cultural fit. I'd dread to go from working for Yahoo to working for Microsoft. I bet many employees feel this too.
    Reply | Link to Comment
  •  
    Dec 01 03:55 AM
    Perhaps Icahn can rescue Yahoo just like he did for TWA.
    Reply | Link to Comment
  •  
    Dec 01 08:47 AM
    Yang is another example of ceo arrognace-- aaronkatsman.blogspot....
    Reply | Link to Comment
  •  
    Dec 01 12:00 PM
    How about everything AT&T did and didn't do from divestititure (1984) to about three years ago? Didn't it even have a reverse split?
    Reply | Link to Comment
  •  
    Dec 01 12:11 PM
    How about the FDIC decision to sell Wachovia Bank to Citi? At least that one didn't happen.
    Reply | Link to Comment
  •  
    Dec 01 05:11 PM
    Do you realize that the GM EV-1 was costing GM $50k - $60k each to build? The lease rate of $600./mo made this a losing deal.
    Reply | Link to Comment
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