Technology Industry

Microsoft’s board is meeting Wednesday to mull over its next move regarding its Yahoo board.

The Wall Street Journal, which has been tipped off, cites “people familiar with the matter,” also known as Microsoft, and reports that an announcement could come after this board meeting.

Microsoft’s board is voting on the Yahoo game plan now.

Here’s a look at the scenarios:

• Microsoft is willing to go to $32 to $33 a share for Yahoo. However, Yahoo wants $35 to $37 a share. I agree with Microsoft CFO Christopher Liddell here: Yahoo is unrealistic.
• Microsoft appears to be pressuring Yahoo shareholders to lean on the portal’s board.
• Add it up and Microsoft could walk away–at least initially. The fact that Microsoft is entertaining a higher bid means that the software giant really doesn’t want a proxy war. However, just the fact Microsoft is willing to raise its offer may woo Yahoo shareholders to its side.

The big question is whether Yahoo will do a deal with Time Warner for AOL, which has a lot of traffic but no ad revenue growth.

In any case, it appears to be Microsoft CEO Steve Ballmer’s call whether to pursue Yahoo, walk away or pony up more cash.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations. Credit: ZDNet.

IAC reported its first quarter earnings on Wednesday and it’s the usual mix of mental hurdles, GAAP reconciliations and imagining what it could be. The big question: Is IAC really worth your time?

IAC, an Internet conglomerate that’s Barry Diller’s baby, is planning to break itself up into five chunks–a new IAC that will include Ask.com and other Internet properties, a retailing unit (HSN), LendingTree (real estates and loans), Interval (condos and vacations) and Ticketmaster. The conglomerate’s results (Techmeme): Net income of $52.8 million, or 18 cents a share, on revenue of $1.6 billion. Sales were up 8 percent from a year ago and earnings were down 8 percent from a year ago.

But where things really get interesting is IAC’s “imagine this” technique with its results. The company details what IAC will look like once all the spin-offs happen.

“With this quarter’s results, it couldn’t be clearer that we are on the right course in separating IAC into 5 distinct public entities. Each of the businesses have their own unique opportunities - some with current challenges and others with wind at their backs,” said IAC’s Chairman and CEO, Barry Diller in a statement.

Just what IAC shareholders need: Another magic potion to deliver shareholder value. First, folks were told IAC’s willy nilly business model would be e-commerce utopia. Then there was the purchase, addition and then subtraction of Expedia. And now a five-way breakup is supposed to deliver shareholders to the promise land.

Color me skeptical. Maybe it’s the IAC shareholder value delivered over the last five years:

Diller’s fix? Hypothetical results summed up in this chart.

You don’t need to be an accountant to realize that the remaining IAC is half decent and the rest falls into two categories (junk and semi-junk). The bright side for what will remain of IAC after the spin-offs is that Google is improving monetization.

But overall the quarter had its “usual plusses and minuses,” according to Merrill Lynch analyst Justin Post. One of the big minuses is that IAC always requires you to perform mental gymnastics to figure out if the company is worth your time. Simply put, there are too many moving parts to take IAC all that seriously.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations. Credit: ZDNet.

United Online has one helluva Internet portfolio: Classmates.com, MyPoints, NetZero, Juno and now FTD, a florist. If you’re looking for synergy you won’t find it here.

The company announced Wednesday that it will acquire FTD for $800 million (Techmeme). The moving parts involved in that sum are a bit complicated, but here’s United Online’s explanation of the terms:

Under the terms of the merger agreement, FTD stockholders will receive $7.34 in cash, 0.4087 of a share of United Online common stock (”United Online Stock”) and $3.31 principal amount of United Online 13% senior secured notes due 2013 (the “Notes”) for each share of FTD common stock in the merger, for a total value of $15.08 per share of FTD common stock based on United Online’s closing stock price of $10.83 on April 29, 2008. The total consideration to FTD stockholders will be approximately $456 million, consisting of $222 million in cash, 12.35 million shares of United Online Stock and $100 million aggregate principal amount of Notes. The remaining purchase price consists of repayment of FTD indebtedness and expenses incurred in connection with the transaction. Upon closing of the transaction, the former FTD stockholders will own approximately 15% of United Online.

Under the terms of the merger agreement, United Online may elect to increase the per share cash consideration payable to FTD’s stockholders by $2.81 in full substitution of the Notes, in which case FTD stockholders will receive a total of $10.15 in cash and 0.4087 of a share of United Online Stock in exchange for each share of FTD common stock in the merger, or a total value of $14.58 per share of FTD common stock, based on United Online’s closing stock price of $10.83 on April 29, 2008. In such case, the total consideration to FTD stockholders will be approximately $440 million, consisting of $307 million in cash and 12.34 million shares of United Online Stock.

Got that? It’s almost as confusing as why United Online would buy FTD in the first place.

Luckily, United Online explains the FTD deal for us. The company says FTD will give United Online a “significant increase in scale.” Sure the company will have $1.14 billion in revenue once FTD is added in, but the interplay between United Online’s units is a bit fuzzy.

Among other reasons for this match made in floral heaven:

• Diversification of revenue streams. Hard to argue with that point.
• “Attractive financial characteristics.” United Online will have recurring cash flow (maybe it doesn’t matter if strategically the FTD deal is misunderstood).
• United Online reaches an attractive market. And it gets to compete to Proflowers.com and 1-800-Flowers.
• United Online can use its marketing expertise to get you to buy more flowers.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations. (Credit: ZDNet.)

3Com said Tuesday that it has appointed Robert Mao to replace Edgar Masri as CEO. The networking firm also brought on Ronald Sege as president and chief operating officer.

The shakeup isn’t entirely unexpected given the 3Com’s inability to sell itself to a group of investors led by Bain and Huawei, a Chinese networking company. The 3Com buyout was shot down over national security concerns.

Without the buyout, 3Com has to forge ahead as an independent company. And that typically means new management.

In a statement, 3Com said Mao’s mission will be to grow the company’s Chinese unit. Sege will “seek to maximize the value of its TippingPoint business as it continues on its path to greater operational autonomy.”

Mao had been executive vice president of corporate development at 3Com from August 2006 to March 2008. Before that Mao was in charge of Nortel’s China operations.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations. (Credit: ZDNet.)

Google director Ann Mather is facing civil charges by the Securities and Exchange Commission in connection to an options backdating scandal at Pixar, where Mather used to be CFO from 1999 to 2004.

In Google’s filing, the company disclosed:

On April 23, 2008, Ann was advised by the staff of the Los Angeles office of the Securities and Exchange Commission (SEC) that it intends to recommend that the SEC initiate a civil proceeding against her, alleging violation of federal securities laws related to certain stock option transactions involving her former employer, Pixar Animation Studios. The staff’s recommendation arises out of Ann’s prior employment as Chief Financial Officer of Pixar, and not her service as a director of Google.

Pixar is now a unit of Disney. Mather has served on Google’s board since November 2005. Mather also has been a director at Glu Mobile, the Central European Media Enterprises Group and Zappos.com.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.

Microsoft continues to grind ahead on its relentless and glacial drive to take over Yahoo, but less noticed in the business press is that it’s also making headway on another front: on enterprise software as it moves into the cloud.

In enterprise software, cloud computing has centered on software as a service, programs hosted on a network that users access typically through a browser. It can simplify maintenance of business software programs, but the newness of it can seem daunting to some IT managers.

Salesforce.com was a key pioneer in this area, quickly joined by Oracle and SAP. This week, Microsoft showed how serious it is about software as a service (or, to use the phrase Microsoft prefers, “software plus services”) with the launch of Microsoft Dynamics CRM Online, a customer-relationship management software designed as an online service.

Although Microsoft is moving fairly late, it has an advantage in the familiarity of many software users with its Windows, Office and Outlook programs, which may be integrated with its online offerings. CIO magazine quoted Ovum consultant Warren Wilson on this point.

“Although Microsoft doesn’t have the track record of either SAP or Oracle in terms of supporting very industry-specific business processes,it has the Windows and Office monopolies which is a huge, huge advantage,” Wilson says.

“What better way to do that then let people remain in Outloook and use that interface to access the [CRM or ERP] functionality,” Wilson says. “Microsoft knows Outlook better than anyone else and has a tremendous advantage to leverage that.”

So Microsoft not only has Yahoo in its sights, it has Salesforce.com. But the Salesforce guys aren’t taking that sitting down. Rumor has it they are tossing out their Windows PCs and buying all their workers Apple Macs.

Marissa Mayer is Google’s vice president for search products and user experience, a title that as is long as her role is important at Google. She isn’t as visible as the trio of Eric Schmidt, Larry Page and Sergey Brin is, but has a lot of insights into the company’s strategy.

On Wednesday, Mayer sat down with San Francisco public radio station KQED to speak with the station’s Michael Krasny on his program Forum. The program is worth listening to and can be downloaded here, but a summary can also be found on the blog Google Operating System.

Among the highlights, as outlined by the blog,

Google could make $80-200 million/year by adding ads to Image Search, but people would use the product less.

Larry Page and Sergey Brin read some studies that showed it’s good to have around 25% of the technical workforce women to get a balanced environment and managed to maintain this proportion inside Google.

The median age for Google’s employees generally follows the average between Larry’s age and Sergey’s age.

Mayer also said that Google is serving up fewer sponsored-link ads to make them more relevant to users, that the company has no plans for a Microsoft-like or Apple-like operating systems for desktops, and that four fifths of calls to 800-GOOG-411 return satisfactory results.

That last number seems low, but it’s free so there probably aren’t a lot of complaints so far.

Years ago, Apple used to have problems managing its inventory. It would launch a hot new product, and offer up far fewer than there was demand for. While Apple has since learned better, it still found itself at the end of March with “stockouts” - or low inventories - of its popular iPhone.

This time, though, it happened for a different reason, one that Apple executives say points to strong demand ahead for the iPhone this year.

On a conference call Wednesday, Apple chief operating officer Timothy Cook explained why Apple stores found themselves in short supply of iPhones last month.

Stockouts were occurring in our own stores at the end of this quarter. We believe that is because people are coming in and buying multiple units and then unlocking and exporting them.

In other words, people in countries in Asia and other areas where Apple has yet to rollout the iPhone are buying them up here, tweaking them to work with foreign phone carriers, and sending them abroad.

Cook said that this is happening often enough to encourage Apple as it plans to sell the iPhone in more countries later this year.

We believe the number [of iPhones sent abroad] continues to be significant. This is a proxy for the worldwide demand for the iPhone.

The ghost of Terry Semel still hangs over Yahoo, as well as its financials.

Semel, who joined Yahoo in 2001 after 24 years of rising through the ranks at Warner Bros. studios, steered the company through hard times, eventually driving the stock to a record high of $43 in January 2006. Then his magic touch disappeared, and Yahoo lost ground to Google. He was released last summer with a handsome severance package.

But Yahoo is still paying him out that severance, and it’s dragging on earnings at a time when the company can least afford it. Yahoo said today that it paid out $29 million to Semel in the March quarter.

On top of that, Yahoo paid another $16 million in laying off other employees. And the costs of consulting outside firms in rebuffing an aggressive takeover attempt by Microsoft in the quarter racked up another $14 million.

All told, the hard luck of late - measured in terms of severance, restructuring and Microsoft-related consulting - totaled $59 million. That’s more than 4 percent of the net revenue Yahoo brought in this quarter. Add it back into the $141 million in net profit, and you have a profit that’s 42% larger, equal to 15 cents or 16 cents a share - which is above the 11 cents Yahoo reported on a non-GAAP basis.

The M&A market may have slowed down a bit even in the tech sector, but there are still signs of life. Take Packeteer, the Cupertino, Calif.,-based bandwidth-management software company. It had drawn the attention of two hedge-funds controlled by Elliott Associates as well as a higher-priced offer from Blue Coat Systems, a network security company.

The winner was Blue Coat, which bid $7.10 a share for Packeteer, or $268 million, versus the $5.50 a share offer from hostile bidders at Elliott, which was only willing to pay $201 million. Which just goes to show, if hostile takeover artists are going to put their money where their mouth is, they should use enough money.

Packeteer’s products include PacketShaper, which provides monitoring services for application traffic; iShared, which helps companies share traffic of documents such as files and email; and Mobiliti software, aimed at mobile users and small companies.

Even worse for Elliott Associates, Blue Coat robbed them of the opportunity of spinning their failure to close the deal. Blue Coat was the first one out with a press release. Blue Coat made its announcement first thing in the morning Monday. Elliott gave its concession speech nine hours later, noting simply that its offer would have expired on Wednesday anyway.

Before at Packeteer managers congratulate themselves, they should read a research note from Kaufman Bros. analyst Manuel Recarey:

To achieve its financial targets, Blue Coat plans to eliminate management overhead, R&D redundancy, and G&A costs (especially at the director level), as well as gain manufacturing scale.