While speculation has swirled that Microsoft was poised to raise its bid, Microsoft is instead biding its time. Such tactics of exercising pressure are standard in deal negotiations but people close to Microsoft insist the stance isn’t posturing. Sure.
The software giant likely hopes to use the potential of a sweetened offer to lure Yahoo into serious discussions. So far the two sides have only had one meeting.
It is unclear at this point as to why Microsoft is sending this signal now. Perhaps, Ballmer figured Yahoo’s just-closed first quarter will be awful enough that $31 a share - a 62% premium will start to look pretty good to Yahoo’s board. People close to Yahoo on the other hand have suggested that a $40 a share offer would be acceptable.
Meanwhile, Microsoft’s strategists believe that time is on their side and they argue that Yahoo’s recent roadshow failed to dazzle investors and nothing in its presentations will justify a higher price.
In addition, the strategists argue that the worsening economic downturn and stock-market weakness make the original bid look even more generous.
Both Microsoft and Yahoo have fallen far behind rival Google (NASDAQ:GOOG) in the lucrative field of Internet search. Yahoo’s earnings and share of the online search market have badly trailed Google.
A Microsoft-Yahoo combination would create a powerful number two player in the online search business, which Google commands. It would also be one of the biggest tech deals in years, on a par with Hewlett-Packard’s $25 billion acquisition of Compaq in 2002.