PJ Media

Is Yahoo! Manipulating Bloggers?

Just when we were starting to feel sorry for Yahoo! (sorta), especially now that Henry Blodget has declared it ripe for a leveraged buyout (we wouldn’t wish those LBO vultures on our worst enemy) suddenly it looks like Yahoo! might be manipulating bloggers for a little “pump and dump” of its own.

In case you haven’t been tracking this long, strange story closely, here’s a summary:

Early this year Microsoft, wanting to expand its Web search business to make it more competitive with market leader Google, made a friendly play for the third big player in the business, the ailing Yahoo! Yahoo! rebuffed the offer — leading Microsoft, on Feb. 1, to make an unsolicited $45 billion bid (in cash and stock) for the company, or about $33 per share.

Yahoo!, even as it cast about for better offers, turned down Microsoft’s bid, saying that it was insufficient — a statement that stunned a lot of shareholders and provoked a couple lawsuits.

This dance continued for several months. During this time, the value of Microsoft’s stock fell, reducing the value of its Yahoo! bit to about $42 billion. Meanwhile, industry leader Google took advantage of the moment to publicly suggest that (hint, hint SEC) such a merger might hurt the Internet.

On April 7, Yahoo! managed to say two things on the same day: that it was still open to a Microsoft offer, and that it wanted more than even the original offer. It was about this time that uber-financier Carl Icahn stepped into the game in the name of disgruntled shareholders, started buying up Yahoo! stock, and began talking about putting his own confederates on the board of directors.

On May 3, having made one last try to buy Yahoo! — this time for an additional $5 billion (bringing the offer back up to $33 per share) — Microsoft announced it was walking away from the deal. It was reported at the time that Yahoo! had demanded $37 per share. Yahoo!’s stock, then at less than $29 per share, went into free-fall, hitting $23 per share and costing the company $6 billion in capitalization. At this point, Icahn went public with his complaints about the senior management of Yahoo!, while Silicon Valley bloggers began deathwatches on co-founder/chairman Jerry Yang’s tenure at the top of the company.

On June 12, after even more secret meetings, Yahoo! announced that all negotiations with Microsoft (for the purchase of all or part of Yahoo!) were now over. To soften that blow, Yahoo! also announced that day that it had entered into a deal with Google for non-exclusive shared search advertising. This news was met with mixed reactions: it meant hundreds of millions in new revenues for Yahoo!, but it also gave Google even more apparent control over the search business. Calls for anti-trust investigation quickly ensued.

Meanwhile, in a show of lost faith with the boardroom’s decisions, as many as fifty senior Yahoo! managers have left the company since the beginning of the year — a classic sign of a Silicon Valley company in extremis.

That brings us up to the present. One can appreciate that Yahoo!’s stock is pretty volatile these days — and its shareholders mighty touchy. After all, just over a month ago, the company’s stock was being valued by Yahoo! itself at $37 per share — and had a buyer at $33. On Monday it was down to $20.60 — just a buck-fifty above where it was back in February when Microsoft first made the bid — and the company’s upcoming quarterly financials weren’t likely to make things any better.

And then a stunning piece of news hit the wires. Michael Arrington, the respected head of the TechCrunch blog (and one of Time Magazine‘s 2008 “most influential people in the world”), ran an item on his site saying that a number of insiders at Yahoo! had whispered to him that Yahoo! was once again secretly meeting with Microsoft. The Internet lit up with the story.

Not surprisingly, Yahoo!’s stock price suddenly spiked 11 percent at the news, reaching $23.71. Soon other sites were saying the same thing, all of them using unnamed sources. But within the hour, CNBC reported that the news was false, and the stock settled back to $21.80, thus erasing most of the momentary gains. Meanwhile, neither company was available for comment.

So, now, six months into this bizarre mating dance between Microsoft and Yahoo!, with Google on the sidelines trying to seduce Yahoo! (if only to create more chaos and wreck the deal) the story seems to have taken yet one more bizarre turn. Did Yahoo! executives yesterday conspire to lie to lie to Arrington about resurrected negotiations with Microsoft in order to pump the stock price? Or have negotiations really begun again?

If it is the latter scenario, then Yahoo!’s management had better come away with as good a deal as before — or face a very big shareholders’ lawsuit.

And if it’s the former, and Arrington got jobbed, then for the sake of his reputation and to call out criminal behavior on the part of Yahoo!, it is time for him to name his sources and let the SEC take it from there.