Like Yahoo, like Sun. Yahoo rejects a tremendous buyout from Microsoft last summer, and the stock tumbles. Total drop in market cap: $30 billion. This week, Sun rejects a tremendous buyout from IBM and the stock tumbles. Total drop in market cap: $2 billion and counting. Aside from the mysterious fact that both companies, and both boards, have walked away from a huge premium, what else is going on here?
The answer is a nutshell is “attachments.” Attachments to people, places, and things are among the most powerful emotional drivers of action, sometimes leading reasonable people to make huge mistakes. Think Bernie Madoff and his unfortunately legion of followers who needed to know “the right people” to be given a chance to invest with the man that churned out 10-12% returns in good seasons and bad. No one (or hardly anyone among his investors) asked any questions – crazy Bernie was one of us, a man to be trusted.
Well, the attachments at Yahoo, and now Sun, are not of the same pedigree, but certainly of the same ilk. At Yahoo, founder and then CEO Jerry Yang built the company into a Silicon Valley legend, thumbing his nose at Microsoft’s hegemony in the process. To then turn around and sell your baby to “the evil empire” was just too much, regardless of price. Keep demanding more, and even a deep-pocketed Microsoft will take its chips and go home.
Enter Sun. Built by Scott McNealy, Sun was an original that prided itself on its independence. Relegated to the board while Jonathan Schwartz took the reins as CEO, Scott could do little harm, until now. Leading the boardroom revolt, McNealy and his faction of directors upped the ante on IBM (and CEO Schwartz in the process), driving the big bidder (close to $10 a share, a 100% premium when offered) away. Founder McNealy, like founder Yang, too attached to the companies they built to imagine selling to the industry winners. And shareholders lose, again.