This doesn't make sense. Which CEO doesn't believe that their stock won't go up in 3 years? If they don't believe it, they should be fired.
Cash is much more valuable than stock. Any CEO worth their salt would ALWAYS issue stock and never cash, since stock is essentially free (with some GAAP repercussions, but better that then spend cash). But it sounds like tumblr wanted cash instead of cash/stock.
It doesn't matter to the employees, they get paid out from the purchase, and then will all get YHOO retention stock options when they join.
Great deal for tumblr, terrible deal for YHOO, it's a waste of cash and as someone else pointed out last week, it's reminicient of Geocities from the dotcom days. Every employee from tumblr will start exiting, maybe after 2-3 years, and the entire thing will fall apart.
"This doesn't make sense. Which CEO doesn't believe that their stock won't go up in 3 years? If they don't believe it, they should be fired."
This is clearly untrue. Which moron CEO at the head of a newspaper anticipates anything more than a very modest increase in their stock over the next few years? Most newspapers are very much aware of their problems. Do you think a CEOs job is to bury their head in the sand and ignore all of the company's problems? Because that's the only way your statement could even come close to being true.
And 2.. as far as Yahoo.. keiferski is right.. it depends on how rapidly yahoo anticipates to grow. Obviously a stock growing at 50% is worth more than one growing at 10%.. and maybe Mayer is incredibly bullish on Yahoo, and believes Yahoo stock is worth more than what the market thinks it is.
A CEO's job is to increase shareholder value. End of story.
This means increasing the stock price. So yes, I do believe that this statement is absolutely true. The CEO needs to figure out a way to increase shareholder value, whether they are Yahoo, or Washington Post, or New York Times, or Groupon. They are not supposed to sit around and maintain dividends. Whether it's breaking into new businesses, selling their current underperforming businesses, etc, that is why they are CEO, to think of new ways to make money and increase stock price. Not to sit on their laurels and collect their paycheck.
3 years is MORE than enough time for any CEO to execute a strategy that increases shareholder value. If they can't, then they should be fired.
So you're saying there were no CEOs at the end of 2008 that thought that even with all of the work they were doing to improve their company, that the recession would have net negative effect on their business. Do you really believe that?
And as this applies to Yahoo... we have no idea how bullish Mayer is on Yahoo.. maybe she thinks the company is going to grow very rapidly over the next few years, and doesnt want to give up a single share. If she is MORE bullish on Yahoo than the market, then Mayer would have considered Tumblr's demand for X number of shares unreasonable.
Cash is not always more valuable than stock. Complicated topic but I'll make one example related to this. As an investor would you rather have cash and pay taxes today on all of your gains or would you rather have stock in a reorganization where you could continue to hold and decide when and how to trigger the income?
The investors here chose cash and since I'm not part of the process I don't know why for certain, lots and lots of complicated factors at play.
"This doesn't make sense. Which CEO doesn't believe that their stock won't go up in 3 years? If they don't believe it, they should be fired."
Yes, they should be fired, but that's not how business works. In reality executives are self-dealing all of the time and corporations survive due to the constant small wins and losses between large groups of self-dealing people.
The CEO, as an insider, has the best knowledge of a company's financial position and estimates of the coming year. Additionally, executives can manipulate earnings and costs by a degree to achieve the outcome they want.
Issuing stock signals to investors that insiders expect the price to go down just as buybacks signal that it will go up. Issuing stock will send the stock lower whether or not the actual numbers show losses in the future.
this claim is indefensible. It depends on the valuation of the company. For example, at IPO MSFT had 25M shares outstanding @ $21, total market cap of $525M. Obviously 5M shares of MSFT stock (market value of $100M) in 1986 was worth far more than $100M of cash.
On the flip side, $100M in cash would have been worth more than $100M in Groupon stock (at the IPO valuation).
More valuable than stock ex ante, obviously not always ex post.
Since the price of a publicly traded stock reflects expectations about future valuations, but also has some additional risk, the cash is usually going to be valued more. "indefensible" is too strong, "not true in every single possible case" might be more accurate. Even then, your examples aren't that helpful; an example of a publicly traded company whose shares were widely thought to be underpriced would be better.
Cash is much more valuable than stock. Any CEO worth their salt would ALWAYS issue stock and never cash
Here's the entire quote. Steven2012's claim is that cash is always more valuable than stock. He's dead wrong. If you don't believe me, maybe you'll believe Buffett on how Dexter Shoes was one of his worst deals ever.
What I had assessed as durable competitive advantage vanished within a few years," Buffett wrote on Friday. "By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6 percent of a wonderful business -- one now valued at $220 billion -- to buy a worthless business."
here's a more general discussion from Buffett on cash versus stock
Instead, our problem has been that we own a truly marvelous collection of businesses, which means that trading away a portion of them for something new almost never makes sense. When we issue shares in a merger, we reduce your ownership in all of our businesses -- partly-owned companies such as Coca-Cola, Gillette and American Express, and all of our terrific operating companies as well. An example from sports will illustrate the difficulty we face: For a baseball team, acquiring a player who can be expected to bat .350 is almost always a wonderful event -- except when the team must trade a .380 hitter to make the deal.
Because our roster is filled with .380 hitters, we have tried to pay cash for acquisitions, and here our record has been far better.
Cash is much more valuable than stock. Any CEO worth their salt would ALWAYS issue stock and never cash, since stock is essentially free (with some GAAP repercussions, but better that then spend cash). But it sounds like tumblr wanted cash instead of cash/stock.
It doesn't matter to the employees, they get paid out from the purchase, and then will all get YHOO retention stock options when they join.
Great deal for tumblr, terrible deal for YHOO, it's a waste of cash and as someone else pointed out last week, it's reminicient of Geocities from the dotcom days. Every employee from tumblr will start exiting, maybe after 2-3 years, and the entire thing will fall apart.
I'm disappointed in Mayer.