Microsoft Should Call Yahoo's Bluff and Refuse to Raise Its Bid

I realize I'm no M&A expert but I do try to look at things logically. Since Yahoo (YHOO) has turned down Microsoft's (MSFT) bid, I think before Microsoft makes their next move, they should think through a few things.

• Microsoft shareholders are not enamored with the proposed deal and the company's share have taken a hit. If they say "take it or leave it" the share price will rally.
• No "White Knight" came to rescue Yahoo from "The Evil Empire", so why bid against yourselves.
• I know this is hard to do for the "Sith Lord" Steve Ballmer, but why would you up your offer for Yahoo? As a stand-alone company they are still the same company as before you made the offer. If you withdraw your offer and say we'll buy it at the price we offered or not at all, what happens to Yahoo's share price. It tanks back to where it resided prior to the offer.
• Microsoft has already scared away any other bidders because of the size of their bank account, market cap and ability to borrow. If another bid materialized they would certainly have raised their offer. This deal is like an eBay auction. The ASP is low until you get two bidder who want the item.

So, maybe this idea doesn't hold water, but it sure makes sense to me. Microsoft should tell them to take it or leave it and only get back in if another bidder materializes. My guess is, if they called Yahoo's bluff, Yahoo would get an earful from shareholders.

Just my 5 cents!

Disclosure: None

Comments

[tillman:]

Not so fast Randy. Now, people know how badly msft wants yahoo. backing down from the bid isn't going to help msft anyways as it is already bleeding through MSN. Inspite of online ad industry's double digit growth MSN has been bleeding hundreds of millions every year. And, with industry growing to 80 bill in 2011 from 40 bill today; I don't see how msft is going to get a major chunk of it without Yahoo's help. To me it seems that msft needs yahoo more than yahoo needs msft. Probably yahoo shareholders needed this before msft's offer. Those who wanted to get out, are already out as they have made profits on their yahoo investment. Only long term holders would be holding on to their stocks. And, they know patience.

2008 Feb 12 11:25 AM

[Tom B:]

Totally agree with Randy.

Another point: "MicroHoo" would be the inverse of "synergy". All the good people at Yahoo-- MUCH better talent than anyone at MSFT-- would jump ship for GOOG. "Sith Lord" Ballmer would replace the secure, high performance Yahoo infrastructure with proprietary MSFT junk, like they did with HotMail. A respectable fraction of Yahoo USERS would jump ship. And it would all unfold over 3 years, while we awaited EU antitrust approval.

2008 Feb 12 11:36 AM

[oceandude:]

I don't get this "why would MS bid against themselves" argument.

Hasn't anyone ever tried to buy something that is NOT for sale? Say you go to a garage sale and the guy has something in his garage you want. It's not for sale. You make an offer anyway. It is refused. You up your offer. Are you bidding "against yourself"? NO! You are simply trying to buy something that does not have a sale price. How is this any different?

2008 Feb 12 12:12 PM

[Randy Smythe:]

Oceandude - the difference is in perception. I'm sure Microsoft was prepared to up their offer. I think the $40 a share that Yahoo is suggesting is a little rich. Calling their bluff is just a negotiating ploy. Walk away, watch Yahoo's share price take a dump because there is nobody else out their to save them. The up you over a few bucks a share to help Yahoo save face. All the while $34 a share is what you were willing to pay.

I don't think Mr. Softy would do that but when nobody else stepped to the plate it became an option.

Tillman, yes people do know how much Microsoft wants Yahoo but they still hold all of the leverage. If they push back from the table and say "see ya" what do you think would happen in Yahoo's board room?

What are the other options? Merging with AOL

2008 Feb 12 02:09 PM

[oceandude:]

I don't think MS will completely drop their offer. That would be an excellent negotiation tactic, but it will drag out the deal for quite a long time (since you also have to allow time for regulatory approval). Meanwhile Ballmer knows Google will keep chugging along.

I do agree that $34/share is a fair price. In the long run MS would be better off paying $34/share amicably than dragging out a boardroom war.

2008 Feb 12 02:14 PM

[Randy Smythe:]

Completely dropping their offer and then coming back when Yahoo capitulates may take longer, but no longer than a Proxy fight. And a boardroom battle, as you suggest, woul not be good.

Ultimately, I don't think Ballmer has the balls to do it though but I certainly would like to see it.

2008 Feb 12 03:03 PM

[Tom B:]

Here's what it comes down to: can YHOO mange YHOO better or MSFT. YHOO is not so competent, But Ballmer is a complete drooling idiot. No sane person would believe he could manage ANY asset properly.

2008 Feb 12 10:21 PM