
Mozilla could walk away from Yahoo deal and get more than $1B - dblohm7
http://www.recode.net/2016/7/7/12116296/marissa-mayer-deal-mozilla-yahoo-payment
======
chollida1
Wow, I'm really surprised that I've never heard of this before, not because
I'm some sort of all knowing cyborg, but because its not like Yahoo
acquisition talk just started last week.

This is a company that's essentially had multiple parts of it for sale for the
better part of 4 years and this hasn't once come out.

I'm running through all the Yahoo corporate filings that Bloomberg has indexed
and I can't find any link to this clause.

I mean this is a very material issue!

If you are to be a share holder in a company that's trying to broker a 3-4
Billion sale of some of its assets, then knowing that the buyer may be on the
hook for an additional 1 billion bill probably means that the asset you
thought you owned is probably worth 20-25% less than you originally thought.

Someone isn't going to be very happy with the yahoo leadership today:)

~~~
bostonpete
> Wow, I'm really surprised that I've never heard of this before

Kara Swisher doesn't seem to provide any indication of where the information
she's reporting came from. Furthermore, the link she provides at the end (as a
well-done "warts-and-all" account of the deal) claims that Mozilla stands to
_lose_ money if a deal goes through...

[https://techpinions.com/is-firefox-search-worth-375myear-
to-...](https://techpinions.com/is-firefox-search-worth-375myear-to-a-yahoo-
buyer/45144)

~~~
hyperpape
As I read it, that analysis (about Mozilla losing money from a Yahoo sale)
doesn't factor in the $1 billion payment Mozilla would be owed if they walk
away, and is based on the assumption that Mozilla won't be able to make
another search deal to replace its revenue with Yahoo. It's probably true that
they can't replace 100% of it, but if they partially replace it, and then make
up for the shortfall with that billion, that probably takes care of them for
many years.

~~~
jacquesm
Another possible scenario: Mozilla pockets $1B, several months later Yahoo
goes bust and then they're free to do whatever they want because Yahoo _can
't_ perform any more.

~~~
rockdoe
The question is, if there's no healthy competition in the search space, isn't
Mozilla (and the web) ultimately still f----ed?

~~~
jacquesm
Long term quite probably yes, but if they manage that money wisely and
concentrate on their core product rather than on all kinds of funky (and
costly) stuff it could last for a long time.

------
jonknee
Marissa Mayer sure makes some interesting contracts. Remember that she was the
one who recruited Henrique De Castro from Google and personally got his
contract approved by the board (though curiously withholding his name and
exact compensation details). He worked at Yahoo for 15 months and earned a
$58m severance. That is in addition to the ~$50m he made while working there.
Again, in 15 months.

[http://www.bloomberg.com/news/articles/2016-02-02/yahoo-
hold...](http://www.bloomberg.com/news/articles/2016-02-02/yahoo-holders-win-
bid-for-data-on-ex-operating-chief-s-ouster)

~~~
chubot
Yup... I think she was out of her league in terms of negotiation. She's a
talented and user-focused product person, but not a
leader/negotiator/employer.

As I noted before, she was never at the senior VP level at Google (i.e.
reporting to the CEO). So she just didn't have enough experience at that
level.

It seems like she got the CEO job based on name recognition, and not a track
record of leadership and business acumen.

It's interesting to consider the outrage about CEO pay in light of this. Sure,
there are plenty of shitty CEOs who don't deserve their compensation. But you
have to respect the fact that, at this level, if you aren't sharp, you'll be
fleeced by your peers (i.e. De Castro, and whoever negotiated the Mozilla
deal). You don't want to work for a CEO who is getting the short end of the
stick all the time.

In addition to Steve Jobs' talents as a product person, he also never got the
short end of any deal. (I'm saying that as a person who has never really used
Apple products.) I was astounded that he basically did a reverse takeover of
TWO COMPANIES -- Apple when he returned, and Disney via Pixar. He negotiated
with all the thugs in the movie and music businesses. There aren't many tech
CEOs who can do that.

I forget where, but I recall some anecdotes about being on the other side of
the table with Bob Iger... saying that those guys basically threatened to
physically harm you, and that their threats were actually credible!!! Like you
should be scared for your life when messing with those guys :)

~~~
jonknee
> Sure, there are plenty of shitty CEOs who don't deserve their compensation.
> But you have to respect the fact that, at this level, if you aren't sharp,
> you'll be fleeced by your peers (i.e. De Castro, and whoever negotiated the
> Mozilla deal). You don't want to work for a CEO who is getting the short end
> of the stick all the time.

I always assumed there were some shark lawyers behind these deals, does the
CEO really ignore advice and go it alone? In Mayer's case it really does seem
so, but a non-sharp CEO should still be able to not be eaten alive if they
bring good counsel to the table (though I guess that itself is the sign of
being sharp!).

~~~
mikeryan
I think it's selling Marissa short to say she just didn't understand the
contracts or her legal options and potential consequences.

I think she understood the consequences but thought that the risk was worth
the reward. In some cases I think personal hubris was involved.

I don't do Billion dollar deals but I've done my share of 7 figure ones. At
some point in every negotiation you need to tell your attorney that you
understand the risks and you're willing to accept those risks or nothing would
ever get signed. I think Marissa was convinced the Mozilla deal would be huge
for Yahoo. She likely didn't think or care if the company got sold (honestly
in that case she's probably out so there's no personal risk for her) and she
was convinced DeCastro would be able to do at Yahoo what he was able to do at
Google.

~~~
jonknee
> I think it's selling Marissa short to say she just didn't understand the
> contracts or her legal options and potential consequences.

So she understood the consequences, but just had no clue as to their
likelihood or didn't care because she would be set financially? It's horrible
either way, she should not be negotiating deals at all.

~~~
rgbrenner
there is a favorable interpretation of this for Meyer.

they're in a bidding war for mozilla with Google and Bing. Yahoo needs their
traffic and is willing to exceed the price of the other buyers.. but it's well
known that Yahoo has been struggling for years. So a cautious Mozilla would
not take their offer unless it was substantially higher, or had some kind of
protection if yahoo fails. Yahoo offers this clause, since Mozilla wouldn't do
the deal otherwise.

Remember Mozilla wasn't desperate. They could have accepted another offer for
at least $300m/year. Yahoo would have been seen as higher risk... people talk
every few months about yahoo like it's a miracle they still exist.

Now, I don't know what happened. but yahoo agreeing to this does not
necessarily mean Marissa is incompetent or didn't care or whatever.

~~~
fapjacks
Right. I have a feeling that this is shocking mostly because of the context,
and not necessarily because of the agreement itself. How many other high risk
agreements have been made in the world? I'm pretty sure most of the human
universe runs on this kind of thing, we just either don't find out about it
because it pays off, or it doesn't matter, because the context isn't exciting.
I said "wow" when I first read it, but only because of what I know about the
whole Yahoo and Marissa situation, not because it seems like a particularly
crazy deal by itself.

------
greenspot
Wow, Marissa Mayer.

That she agreed on Mozilla's change-of-control clause—so Mozilla can just walk
away in case of a M&A deal and still get $1B—is simply disconcerting.

I do not have any insights and why she gave in on this point but I know that
one of her main skills and responsibilities in her position is to negotiate
well and do proper deals. She had to negotiate this change-of-control clause
away or to let Mozilla sacrifice on the payout if they walk away. Moreover and
considering that Mozilla doesn't have that many financial potential search
partner options (Google has been with Chrome rather a competitor for many
years now), this should have been possible, I'd assume with my limited
knowledge.

I do not like if random forum guys like me are bashing CEOs, I know that this
is the toughest job and I don't want to pass judgement on decisions I don't
have insights on. But this is really, really weird and Marissa should have
known that this bummer will pop up at the next due diligence and create
distrust ('are they more time bombs at Yahoo? lets dig deeper') or just reduce
the deal value or just increase deal complexity later.

Maybe she didn't think about M&A at that time and she was rather in a fire-
and-forget mode but a CEO is always supposed to think about what happens if
new shareholders join, about the next due diligence, heck just about the
future of the company and eventually, to keep the company _always_ in a proper
and clean state and not leaving time bombs for potential successors.

~~~
jldugger
> That she agreed on Mozilla's change-of-control clause—so Mozilla can just
> walk away in case of a M&A deal and still get $1B—is simply disconcerting.

If you assume the board offered her the position in with the expectation of
negotiating a purchase by Google, then the M&A deal costs Mozilla very little
-- Google was the previous contract holder, and remains so in many markets.

------
JoshTriplett
A clause like this could actually make sense for negotiation. Consider the
following two hypothetical deals from Yahoo's perspective:

\- $375M/year to Mozilla, with the clause to keep paying for 3 more years if
Mozilla doesn't want to do business with Yahoo's new owner.

\- $450M/year to Mozilla, with no such clause.

The former seems like the smarter deal for Yahoo to make _if_ they want to
focus on being successful rather than on being bought. It only sounds
problematic if you start focusing primarily on getting acquired.

~~~
empath75
I'm not sure why they'd reject the deal if Aol buys them, given that the
Mozilla foundation owes its existence to Aol.

~~~
JoshTriplett
AOL doesn't seem any worse a choice than Yahoo, no; on the other hand, I can
think of other companies they might want to reject doing business with, and
they probably could too. Hence that clause had enough value to make it a point
of negotiation, and it cost Yahoo less to offer that contingency clause than
to offer more money.

------
rdtsc
> Mayer has handed out excessively generous deals to many top execs, such as
> its chief revenue officer Lisa Utzschneider.

Right. Wonder if she honestly thought this would have fixed anything or she
knew the train is headed to the final station and just wanted to be surrounded
by a group she picked and the only way to get them to do that was was to buy
her friends.

It is always fascinating to watch a company like that, and wonder if
executives still privately believe it is a salvageable situation or they just
put up a face and ride the gravy train with some nice golden parachute
contract clauses. They probably have to use euphemisms and hints with the
board and other top level people to convey their suspicion of viability, as
they don't want to be negative and just too pessimistic as it makes them look
like liars in press releases, but they can't also be completely oblivious
either, that looks bad as well.

------
throwaway6497
Looks like everyone gets to milk the Yahoo cash cow - board, investors,
business partners, execs, friends of execs and management except engineers.
Yahoo still pays engineers terribly hoping to compete with the likes of Google
and Facebook. Why don't they just give up at this point and expedite selling.
Why bother with all the posturing.

~~~
rrdharan
My information on this is secondhand/word-of-mouth but it is my understanding
that at least some engineers at Yahoo have in fact been _very_ handsomely
compensated.

A friend of mine involved in offer negotiation at another company who was at
one point (this was perhaps 5-6 years ago) trying to poach some high level
Yahoo infrastructure folks told me that a lot of senior Yahoo engineers had
straight cash compensation packages that rivaled what Google or Facebook would
pay in cash + RSUs.

Presumably these were folks involved in directly maintaining core revenue
generating ad systems who would be very expensive and painful to lose /
replace.

~~~
throwaway6497
They may be exceptions. I can't imagine engineers at Yahoo are pulling in
$400k+. Only engineers who got in through acquisitions have packages
comparable to what engineers at Google and Facebook make. Majority of Yahoo
engineers make 30-50% less than people of comparable levels at Goog/Fb. Check
[http://h1bdata.info/](http://h1bdata.info/)

~~~
geodel
I do not think they are working for yahoo out of loyalty.

------
ChuckMcM
I think part of this is how much search traffic firefox can swing on the
Internet. Remember that Google and Yahoo (and maybe Microsoft's Bing) were
probably courting Mozilla for that contract.

In the context of that negotiation I could certainly see it coming up that
Yahoo! might be acquired and Mozilla wanted some assurances if they went with
Yahoo!. So neither Bing nor Google has that concern, so Yahoo! is the only one
exposed.

------
strictnein
Honest question: what in the world does Mozilla do currently with $375 million
a year?

~~~
rockdoe
Pay about 1000 employees and host a ton of infrastructure for a bunch of open
source projects (including of course Firefox, but also things like Rust,
Valgrind, Opus, etc.).

~~~
amenod
And hopefully saves some part of that for rainy days when search deals will no
longer be this profitable.

~~~
rockdoe
I think the Firefox OS project was just that, but it didn't work out.

~~~
amenod
I am not talking just about projects, but about cash in the bank. Once the
funding stops you should have enough funds to bridge the gap until you find
the next big project. Hopefully as great as Firefox and Rust are. Kudos to
Mozilla!

~~~
Brakenshire
Yes, in principle they should be able to put away enough to operate in
perpetuity (albeit on a small budget). It would be interesting to know whether
it's happening, presumably the finances are public so it shouldn't be too
difficult to to find out.

~~~
rockdoe
[https://static.mozilla.com/moco/en-
US/pdf/Mozilla_Audited_Fi...](https://static.mozilla.com/moco/en-
US/pdf/Mozilla_Audited_Financials_2014.pdf)

90M USD cash, 140M USD investments in 2014.

------
sesutton
With a deal like that what incentive does Mozilla have to not walk away if
someone buys Yahoo? They'll get $1.1 billion dollars for free.

~~~
amenod
The buyer will surely negotiate with Mozilla before they buy Yahoo and get a
commitment from them (which might be worth extra $). That, or they will see it
as sunk cost.

But Mozilla might have a bit of PR challenge on its hands if they walked
away... :-)

~~~
k__
challenge?

they would finally be free...

~~~
rockdoe
Free to do what, though?

~~~
SixSigma
Spend $1bn

------
xiaoma
> _" There is a lot of hair hidden at the company..."_

Is this a normal phrase in the enterprise world? I don't think I've ever heard
it before.

~~~
MOARDONGZPLZ
I haven't heard it in this context, but in the No Hair Theorem, the eponymous
"hair" refers to "other information," so I think it makes sense. There's lots
of hidden "hair," or information, at the company?

[https://en.wikipedia.org/wiki/No-
hair_theorem](https://en.wikipedia.org/wiki/No-hair_theorem)

~~~
nilved
It's not a reference to that theorem; it refers to "hairy," used to describe
something complicated or ugly.

------
seizethecheese
With $1B from a breakup it seems the dominant strategy for Mozilla could be to
develop it's own search engine.

~~~
homero
Pretty much, traffic is the hard part and they've got it

~~~
Strom
Traffic is the hard part? Have you tried search engines other than Google?
They're all terrible.

~~~
gtirloni
Rephrasing: getting people to switch from Google (traffic) is the hard part,
but Mozilla has the means to influence that (through Firefox's default search
engine) more than, say, DuckDuckGo.

------
AdmiralAsshat
Assuming they walk away from Yahoo, though, whom would they select as their
next US search partner? Return to Google?

~~~
Asparagirl
They probably couldn't make a better offer than Google in monetary terms, but
DuckDuckGo seems much more philosophically aligned with Mozilla.

~~~
spullara
They need to make a deal with someone that monetizes search at a very high
level. DuckDuckGo uses Yahoo! to monetize its search engine.

~~~
yeukhon
Which in turns get from Bing. So really, there isn't a better choice for
Mozilla. I honestly don't have a preference on Google vs others. As long as
there is a way to disable tracking as a preference, done deal. I am not too
scared of Google's tracking, but I understand others are.

------
SubiculumCode
Firefox has a great feature where after typing a query a menu of search
engines appears immediately below. Very convenient and allows me to mix up my
searches across the search engines very nicely and easily. Yahoo got bilked by
Mozilla..and probably the best thing Yahoo ever accomplished.

------
venomsnake
Could that be her attempt at a poison pill? How the *7"( did the board approve
that deal?

------
jMyles
Everyone here is decrying the decision-making process of the CEO - which
obviously is already in question - but I'm left pondering a different
perspective.

Yahoo has cash. Sure, they're not Apple in terms of liquidity, but they're not
a startup either. Mozilla is - and I may need to solicit your agreement here -
a Good Thing for the world.

I'm not convinced that being a Bil in the hole to Mozilla is so bad.

By contrast, there are several companies that are, according to some legal
theories that may yet prove persuasive in court, in debt this much or more to
governments by dint of their offshore accounting practices.

At which company do you prefer to be a shareholder? One which owes Mozilla a
billion, or one which very well might owe an armed, hotheaded, unpredictable
entity several billion?

Ultimately, if I'm a shareholder (and I'm not), I can forgive a billion
dollars to mozilla more easily than the other Yahoo mis-steps.

~~~
LAMike
What companies are you talking about?

~~~
jMyles
No specific companies in particular; I was thinking of it more like a
spectrum, from Enron / Worldcom to, say Dreamworks (implicated in Panama
Papers but probably within the letter of the law).

I'm just saying: being indebted to a (reasonably awesome) outfit like Mozilla
is less upsetting to me than being in hot (or even warm) water with the IRS.

------
bobsil1
Microsoft offered $44.6B for Yahoo, was turned down and dodged a bullet.

------
peterjlee
Maybe with all that money they can buy DuckDuckGo and make it the default
search engine? It's a risky move though. If DuckDuckGo doesn't workout, they
lose the option of switching to another search partner.

------
shmerl
I hope Yahoo won't abandon search. We need more competition.

~~~
mtmail
Yahoo search is a thin layer on top of Bing these days. Yahoo only ran it's
own search (crawling etc) about 2003-2009, all other years it was outsourced
(to Inktomi, Overture, Google, Bing) [http://news.softpedia.com/news/Yahoo-
Sells-Search-Business-t...](http://news.softpedia.com/news/Yahoo-Sells-Search-
Business-to-Microsoft-117845.shtml) (2009)

~~~
shmerl
So was Marissa Mayer trying to return Yahoo to do real search again?

~~~
mtmail
I'd say after the Microsoft deal there was no turning back. Too many people,
machines, IP moved. Overture bought Inktomi, Altavista, alltheweb search
engines. Yahoo bought overture for 4 billion. That was 100s of engineers.
Starting again would be an (in my opinion) impossible hiring task, 10miles
away from the Google Campus who tend to make excellent counter offers. And at
web-scale you cannot be great unless you index, well, almost all the web.

------
paulbjensen
I could understand a break clause based on change of ownership, but the fact
that Yahoo would still be obligated to pay is nuts.

Would Mozilla ever want to exercise this clause? I don't know - I wonder how
they would react if Verizon/AOL ends up buying them, given that Netscape was
bought by them early on.

------
schnevets
Wow! If they received that chunk of change all at once, it could completely
change the company. Imagine an endowment of that size, with the investment
income being used for Mozilla's maintenance and initiatives.

~~~
rogerdpack
They apparently already receive 1/3rd of that each year, though, so my guess
is it'd just be more of the same, as it were, though at a greater pace.

------
homero
Where's this money go? I thought many developers were doing it for free. Yet
they can't support thunderbird or persona

------
ekianjo
I thought yahoo japan was a completely separate entity from yahoo global, why
does the article mention softbank at all?

------
kriro
Is there a reason why Mozilla shouldn't decline and take the money 100% of the
time?

------
microDude
It is very easy for the user to change the default Search Engine for the
browser (to say Google or DuckDuckGo). I would think most FireFox users do
this... So, $375M/year seems like a very high price for Yahoo to be paying. Is
this just a price war between the few search giants trying to keep competitors
priced out of the market?

~~~
a_small_island
>I would think most FireFox users do this

My inclination is that outside of the hackernews community and those like it,
most FireFox users have no idea what you're even describing.

~~~
fireworks10
Exactly. I've seen people young and old have Yahoo as their default search on
their PC or phone, and they usually don't even realize it's not "Google"
results.

~~~
bduerst
My in-laws were still using browser toolbars. They thought that toolbars were
how you used the web and only used websites that had them.

The idea of changing the search defaults is beyond a large segment of internet
users.

