Yahoo! the First Winner in Google IPO
By Tom Taulli August 10, 2004
In early July, I wrote a piece for The Motley Fool in which I talked about how competitors use guerrilla-war tactics during the pre-IPO phase, such as when Barnes & Noble (NYSE: BKS) launched a lawsuit right before Amazon.com’s (Nasdaq: AMZN) IPO. I concluded that Yahoo! (Nasdaq: YHOO) might “rattle” its saber with its patent fight with Google.
You see, one of Yahoo’s smartest acquisitions was Overture, which has patented technology for advertising based on Web searches.
Well, Yahoo! took a stab at Google and reached a settlement yesterday. Yahoo! will get 2.7 million shares of Google, which amounts to $291 million to $365 million based on the price range of $108 to $135. Yahoo!, in turn, will blow out 1.1 million of its shares in the IPO. Currently, Yahoo! owns 6.6 million shares of Google.
Google was smart in reaching the settlement. The company avoided a surprise attack from Yahoo! and also cleared up uncertainty regarding the business model. Just imagine if a federal court ruled that Google had no right to use its auction system, which accounts for much of its revenues.
For Yahoo!, the company was clearly in a position of strength and was not shy in exacting a great deal. After all, business-method patents can often be difficult to enforce. For example, the lawsuit between Yahoo! and Google had lasted two years already.
However, in the brutally competitive war for search, Google may still be sandbagged by its competitors on the eve of its expected IPO. For instance, is Microsoft (Nasdaq: MSFT) cooking up a big announcement?
In the wacky Google IPO process, anything seems possible.
Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements. He does not own shares in any of the stocks mentioned.
This makes me happy. I purchased a modest amount of Yahoo! in 2000. At the time I thought that I was getting in near the bottom and found out that I was quite wrong. The stock took about an 80% hit after I purchased it and it plummeted. It dropped so fast and so far there was no point to consider a short sale, but I really didn’t want to do that either.
My hope was that the Net and Yahoo1 would prove the naysayers wrong. And I am pleased to see that it did. I think that Yahoo! managed to survive because they had the advantage of first mover status followed up by smart leadership. First mover helped to build the brand, but the smart leadership saved the company. They could have easily gone the other direction.
And now my shares have split a couple of times and their value has increased. A little luck never hurts.