Are Hostile Takeovers Coming to Silicon Valley?

San Jose Mercury News
February 1, 2008
By Mark Boslet

The adage that hostile takeovers don’t work in technology is dying. Microsoft’s $44.6 billion bid for Yahoo may be the final proof.

The belief among investment bankers has been that unfriendly bids for high-tech companies create ill will and lead top engineers to look elsewhere for jobs. Without this critical technology staff, the company’s strategy flounders and its sales dive.

But the increasing maturity of high-tech markets is encouraging executives to reconsider the assumption and reply on unsolicited offers. “I actually think this is a trend we will see much more of in 2008,” said Ron Lissak, managing partner at the investment banking firm Catapult Advisors of San Francisco. “It may not only be used for large-profile companies, but I think you’ll start to see it move down stream as well.”

Oracle’s Chief Executive Larry Ellison is an example of one such executive, and his 2005 purchase of software maker PeopleSoft showed itself to be a success – despite the intense acrimony it initially triggered.

Ellison went on to make an unsolicited offer for software rival BEA Systems before arriving at a friendly deal to buy the company.

Microsoft Chief Executive Steve Ballmer left open the door to discussions between the two companies when he released a letter to the Yahoo board this morning, but he dangled his $31 a-share bid with a 62 percent premium before shareholders as an attractive alternative to keeping Yahoo shares. The idea is that they would put pressure on management to consider the bid.

“It’s more preception than reality that hostile takeovers of technology companies are more risky,” said M. Benjamin Howe, chief executive of American’s Growth Capital, a Boston investment bank. “There’s little difference between those companies and any other company of a similar size.”