Pride shimmers in a shot glass, but it goes down hard.
Restoration Hardware (Nasdaq: RSTO) is finding that out the hard way. It rebuffed a $6.75-per-share offer from Sears Holdings (Nasdaq: SHLD) two months ago after accepting a $6.70-a-share offer from management-led Catterton Partners.
We may never know how sturdily the $6.75 exit strategy would have stuck, but we already know the price of Restoration Hardware's poor judgment. After a slight dip in holiday sales and further rumblings of the housing industry's downturn, the home decor retailer found Catterton slashing its buyout offer to $4.50 a share last month.
Sears probably chuckled, even if it meant a financial hit on the nearly 14% stake that it had accumulated in Restoration Hardware. The $6.75 offer was laughably off the table. Last night, Sears re-entered the picture by offering a more realistic $4.55 per share.
Circuit City (NYSE: CC) turned down a $17 buyout offer three years ago. It trades today for less than a third of the parachute at which it scoffed.
Will Yahoo! (Nasdaq: YHOO) be the next overly proud company to go down whiffing?
The dot-com heavy already turned down Microsoft's (Nasdaq: MSFT) offer. It was originally valued at $31 a share, but the market's negative reaction to the software giant's pricy bid now finds the cash and stock deal valued at a blended $28.77 a share.
A proxy battle may push out the $28.77 buyout offer for Yahoo! investors to decide on, but what if they, too, have been swigging the Proud Punch? What if conditions continue to deteriorate -- as we saw with Restoration Hardware this winter -- and even the original Mr. Softy parachute is no longer available?
Time is not on Yahoo!'s side. Valuations in the search engine space have fallen since Microsoft's original offer. Both Google (Nasdaq: GOOG) and Ask.com parent IAC (Nasdaq: IACI) -- two companies growing their online advertising much faster than Yahoo! -- trade at earnings multiples in the teens based on next year's projected profits.
In other words, Yahoo! may have been overvalued even before Microsoft's bid, and that's accounting for the roughly $12 a share that Yahoo! has in cash and Asian investments. Why do I get the feeling that -- a year from now -- Yahoo! may join the list of companies like Restoration Hardware and Circuit City that lived to regret the moment that they let credible buyers walk away?
Yahoo! doesn't want to hear that. Pride isn't just a humbling drink. It comes with earplugs, too.
