Daily Archives: September 16, 2009

Google Proactively Pursues Yahoo Search Engineers

With Yahoo’s need for search engineers drastically reduced as a result of its partnership agreement with Microsoft, Google wisely has chosen to recruit proactively from the ranks of its erstwhile search rival.

Microsoft has signaled that it will hire about 400 Yahoo employees, presumably hoping to grab the best and leave the rest to Yahoo reassignment or layoffs.

Disinclined to leave Microsoft alone at the buffet table, Google now will compete for the best of Yahoo search talent. Ask.com already is in the race to snare Yahoo search engineers, but it just isn’t in the same league as Google or Microsoft .

Let’s see how Microsoft responds to Google’s aggressive recruitment gambit. Given the pronounced Goodfellas-like rage that Steve Ballmer unleashes when he loses personnel to Google, one would think Microsoft recruiters will be given emphatic orders to trounce Google in the contest for prized Yahoo brainpower.

SEC Filing Suggests Nothing Untoward in Google-On2 Backstory

Earlier this summer, Google announced its intention to acquire video-compression vendor On2 Technologies in a stock-based transaction valued at approximately $106.5 million.

Some On2 shareholders took exception to the announced transaction. They filed suit to block the deal, arguing that On2’s board of directors violated its fiduciary duty in not attempting to find another prospective buyer for the company and in not demanding a higher price from Google.

At the time the lawsuit and attendant injunction request surfaced, I was skeptical of the disgruntled shareholders’ claims. The price Google was willing to pay for On2 seemed a fair valuation. In my view, the disaffected shareholders crafted the lawsuit to squeeze Google for an out-of-court settlement that would amount to a few more pennies per share.

Now, as reported by paidContent.org, an On2 SEC filing provides a chronological account of the background behind the merger. If the content in that filing is accurate, the shareholder lawsuit definitely appears to lack merit.

Basically, the SEC filing indicates that On2’s board performed its due diligence, upheld its fiduciary obligations, considered other potential buyers for the company (though it did not actively pursue them, for reasons explained in the filing), and negotiated upward from an original Google offer of 45 to 50 cents per share to the agreed price of 60 cents per share. At one point, the On2 board wanted as much as 90 cents per share and was pushing for a minimum of 65 cents, but Google stood firm with its final offer of 60 cents.

Having read the filing, I cannot see an instance of malfeasance, dereliction of duty, or impropriety in the actions of the On2 board of directors. The chronology suggests that the initial talks, subsequent negotiations, and eventual acquisition agreement followed a progressive, responsible course.

M&A Activity Doesn’t Prefigure Resurgent Prosperity

Over at GigaOm, the eponymous Om Malik seems to think the economy has turned the corner and that a new wave of technology-industry mergers and acquisitions will wash ashore.

I’m less convinced than most that we’re entering a new era of prosperity. Any recovery will be modest, at least in the developed world, because it’s now apparent that the American consumer no longer can afford to function as the omnivore that avidly devours the manufactured exports from China.

The decline of the American consumer will have major economic implications, and not just in the USA. Remember, consumer spending accounts for nearly 70 percent of economic activity in America, and many export-driven economies depend directly or indirectly on that activity.

Technology companies compete globally, though, and China’s economy is growing, as are the economies of other developing nations such as India. China is busily attempting to engineer the creation of a consumer class, one that will compensate for the slackening demand that has resulted from the financial enervation of the American consumer. That will take a lot of time and effort, however — years, not months.

During this lengthy interregnum, the period between the rise of a Chinese consumer economy and the exhaustion of the US consumer, recoveries will be tenuous and tepid. I don’t think we’ll see the economy come surging back; nor do I think we’ll see anything approaching an information-technology renaissance along the lines of the roaring 1990s. Those days are gone, folks, never to return — not to information technology, and not to Silicon Valley.

Still, mergers and acquisitions will occur, because companies that are in business want to remain in business. They’ll have to make acquisitions to diversify beyond slow-growth markets and to defend against competitive encroachments from equally desperate industry counterparts.

Given our long-term economic reality, let’s not mistake the acquisitions that will occur for signs of an impending rebirth of untrammeled tech prosperity. Most acquisitions will be strategically defensive or based on value buying (relatively low-cost or fire-sale transactions).

An example of the former type was announced yesterday. Adobe’s acquisition of Omniture was fundamentally defensive, driven more by fear of stagnant growth in its established product portfolio than by swaggering confidence in limitless growth. Adobe’s flagging numbers corroborate that assessment.

Even during tough times, mergers and acquisitions continue.