Stars Fall to Earth
As the Bear Market continues and forecasts begin to come down for fiscal year ‘08, we will start to see some stars fall to earth. Yesterday, EMC CEO and VMware (VMW) chairman Joe Tucci moved to oust VMware’s cofounder and CEO Diane Greene. (VMware was spun out last year in a very successful IPO; EMC still owns 86% of VMware’s shares, post IPO.) Greene started the company with her husband, Mendel Rosenblum, a Stanford University computer science professor. Tucci was quoted in the Wall Street Journal that, “the board had concluded Ms. Greene lacked the experience to continue running a company that expects to have revenue nearing $2 billion this year.” She was replaced by Paul Maritz, a veteran of Microsoft, who retired and then started Pi Corp., a company that EMC acquired. As in past downturns, boards start to question whether a CEO that has driven a fast-growth company to stardom can manage a decline and protect shareholders on the downside. It is clear that we are once again seeing a slowdown in IT spending by the large enterprise clients. I anticipate that this retrenchment in spending will carry over into the first half of ‘09.
As the malaise spreads, even boards of early stage, venture-backed technology companies are going to be faced with tough decisions regarding leadership over the next several quarters. The best training for a leader to ride out these downturns is to have lived through one or two before. I trust that the CEOs that survived the tech bubble in ‘01-’02 will move quickly to protect on the downside.
I predicted several months ago that the Microsoft (MSFT) vs. Yahoo (YHOO) battle would be over shortly. Then Carl Icahn jumped into the fray and put forth a slate to replace the Yahoo board. With Steve Ballmer now joining with Icahn and stating that he would be open once again to a Yahoo transaction if the current Yahoo board is replaced, it appears like this battle will move back to center stage. Jerry Yang, Yahoo’s cofounder and CEO, has now been widely quoted saying that Microsoft is trying to destabilize the company. Between now and Yahoo’s August shareholders meeting, the rhetoric should heat up on both sides. Will Yang and Sue Decker be two more stars that will fall to earth before they have a chance to execute their ambitious growth plans?
Finally, this past weekend we saw the announcement that Landmark’s Weather Channel will be sold to a consortium led by NBC Universal, Bain Capital and the Blackstone Group. It was speculated that the price paid is close to $3.5 billion. NBC Universal will provide management services, but the majority of the equity was provided by the two private equity firms. In the current credit crunch, I believe that this type of consortium deal will become much more in vogue, particularly for transactions over $2 billion. Returns will be more modest than in the past, but deals will get done.