Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Yahoo buyer must fire board

December 1, 2011: 1:22 PM ET

yahooDear private equity firms thinking about buying (at least part) of Yahoo,

I'm sure you have all sorts of good reasons for wanting to catch one of the Internet's sharpest falling knives. Maybe you believe that Yahoo (YHOO)  has become much too scattered, and believe it needs to refocus around its mail, content and/or commerce businesses. Maybe you believe it hasn't been scattered enough, and needs to go on an acquisition spree. Maybe you just want to be known for trying to turn around what was once a great brand (we'll call this the Cerberus/Chrysler prerogative).

No matter the game plan, your first order of business should be obvious: Fire Yahoo's board of directors.

Not two or three directors, as some firms reportedly are thinking. Or just the ones who might vote against your stewardship. All of 'em.

It is just not a trustworthy group. Yesterday reports began to surface that a group including by Silver Lake Partners and Micosoft (MSFT) had bid $16.50 per share to acquire a 20% stake. Then came news that TPG Capital was bidding a buck more per share for a similar amount. Finally, the NY Times suggested that Bain Capital, The Blackstone Group, Alibaba.com and Softbank all are talking with each other about a $20 per share takeout of the entire company.

Maybe I'm being hopelessly naive, but I just cannot believe that the specific pricing leaks came from any of the aforementioned firms. For example, why would Silver Lake want anyone to know it bid $16.50 per share? Not only does it hurt Silver Lake from a competitive bidding perspective, but it also could help artificially inflate the current trading price (i.e., force them to pay a premium upon a baked-in premium). Same goes for TPG or Bain or Blackstone or Alibaba.

Yahoo's board, on the other hand, does have motive. All sorts of it. And I believe that it's leaking like a sieve.

You certainly can make an argument that it's in Yahoo's best interest to drive up its sale price, which would mean that its directors are doing right by shareholders. But they also would be violating confidentiality agreements, and could hardly be trusted going forward. Unless the eventual buyer is able to determine the specific leaker(s), then everyone must go. Otherwise the knife will become much, much sharper going forward.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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