Mr. Ballmer: Pull the Yahoo Offer Now!

In this high stakes game of "Texas Hold-em" Microsoft (MSFT) still has the upper hand and I believe they should take advantage of that position.

I wrote about this in February and Microsoft finally agreed with me, when Steve Ballmer "laid down the gauntlet" and gave Yahoo (YHOO) three weeks to seriously begin negotiations on their proposed buy-out offer. Yahoo of course said no and began testing a relationship with Google, to outsource their paid search and once again rumors surfaced about a potential Yahoo/AOL deal.

It is like a high stakes game of poker. Microsoft knows they are playing with the best hand and Yahoo is bluffing, so Microsoft make a big bet to test Yahoo resolve. Yahoo calls that bet and raises. In this case Microsoft should go "all in" by pulling their offer. Basically saying, show us your cards.

IMO, Mr. Softy should pull its offer today! Don't let these other options for Yahoo gain any steam. Pulling the offer right now would deflate Yahoo's share price and cause investors to lose their lunch.

There are three reasons why Microsoft should pull their offer right now:

• The Devil you know is better than the Devil you don't know - Microsoft has offered $41 Billion for Yahoo. An AOL deal can't match that offer in value and a Google relationship has huge anti-trust implications. The unknown is worse than the known for investors.
• Yahoo announces earnings on April 22nd. If the Microsoft deal is pulled off the table now the next 12 days will be hell for investors. If earnings disappoint, Microsoft just comes back in and says the original offer is still valid. If Yahoo beats the street soundly (not likely) then Mr. Softy will have to up the ante. This may seem like a gamble to you and me, but I'm sure they have a good idea where Yahoo's earnings will end up.
• They can always come back to the table and either start a proxy battle or make the same offer. If Yahoo is making their moves from strength then the offer will need to be increased. If they are bluffing, which it sure looks like to me, then Microsoft can maintain their original offer and look like the good guy at the same time.

Mr. Ballmer, don't give Yahoo an opportunity to gain any traction. Pull the offer now.

Disclosure: None

Comments

[b1955c:]

i now know why your a writer and not a poker player. the object is to win, not open the door to lose. i hope mr ballmer has allready faxed a letter to yhoo's board upping his original 44.6b bid to 46 or so billion. this would satisfy the institutions and they will pressure the yahoo board to accept or the lawsuits will fly. mr. yang has allready boxed himself into a corner and really has no other place to go. goog is the only savior here and antitrust regs are stopping them.

2008 Apr 11 09:32 AM

[steveballmer:]

I would have but the Yahoo people talked back to me like I was some kinda' joker or something! This is no longer about business, money, sales, .... it's about status and pride! If we back down now that we have been called fools and liars, we will get this kind of treatment everywhere! I am going to have Yahoo, even if I have to destroy it!

2008 Apr 11 09:34 AM

[Poker Player:]

Of course you are a really bad pkr player. Pathetic!
I own MSFT and we need badly YHOO. Period.
Our offer is great and we will add something but not too much. So everybody wins!

For some people money is not everything. And you seem to forget this in your equation.

2008 Apr 11 09:48 AM

[bluesmoke:]

OK, I'm going to put this on my "watch list".

2008 Apr 11 09:49 AM

[reno:]

if msft walks, doesn't yhoo drop 4-5? and if the earnings aren't so hot, doesn't it drop another 2-3. so is it conceivable yahoo could be at 20 by end of april. weren't they at 19+ before msft offer? couldn't msft come back in May and bid 28 then up to 30? yhoo has no other partners. msft can low ball. worse scenario, they get it at 31. no need to sweeten the pot.

2008 Apr 11 10:08 AM

[Randy Smythe:]

Okay the Texas Hold-em analogy wasn’t the best. A poker player doesn't win by leaving the table, but in this case MSFT does win if they leave the table.

Reno, thanks for reading the post and not getting stuck on the poker analogy. In one short paragraph you said what I took a whole post to say.


They pull the offer now and come back later to

2008 Apr 11 10:23 AM

[EAllen:]

Randy Smythe has it right....this whole thing is analagous to picking up a dirty hooker on the street, giving her a warm bath and a nice food to eat, and then she turns around and expects you to give her half your stuff. The real sad fact is Microsoft doesn't need Yahoo to begin with; in the end, this is Microsoft's greatest mistake, albeit their negotiating skills indicate that their best days are behind them. Even if Microsoft "wins" this debacle, long term Microsoft is a strong sell as they have shown through this process that they are clueless---much like the idiot that picks up a dirty hooker and treats her like a queen!

2008 Apr 11 10:46 AM

[SteveO68:]

AGREED! ABSOLUTELY!!

MSFT needs Yahoo?? What part of bluffing as related to texas hold 'em don't you understand. MSFT is seeing the raise and waiting for the river card to be dealt. Get the heck out of your cubicle once in a while.

2008 Apr 11 10:51 AM

[John Capozzi:]

EVERYONE SEEMS TO BE MISSING THE GREAT QTRS AND FINAL YEAR END STATEMENTS THAT ALLIBBA AND SOFTBANK WHICH OWNS THE MAJOR STAKE IN YAHOO JAPAN. NOW SHOULDNT THESE 2 COMPANIES BE BROUGHT TO THE TABLE? WOULD'NT YOU THINK THEY HAVE A LOT TO SAY ON THE BID PRICE BECAUSE MOST OF THEIR BUSNESS'S ARE BASED ON YAHOO USA AND OTHER BUSINESS'S AS A WHOLE? I WOULD THINK SO. JUST LOOK AT THE GREAT QTRS THAT ALLIBBA AND SOFTBANK JUST POSTED. LOOK AT THE GREAT FORWARD LOOKING OUTLOOKS THEY POSTED. YAHOO CAN VERY WELL SURPRISE AND THEY ALREADY STATED THEY WERE GOING TO BE INLINE AND THEIR FORWARD LOOKING CASH FLOW WOULD INCREASE A HUGE AMOUNT I THE NEXT 2 YEARS. MOST OF THIS BUSINESS I WOULD THINK IS COMING FROM ASIA AND NOW INDIA FROM THEIR RELATIONSHIPS AND BUSINESS WITH SOUTH KOREA JAPAN, SOFT BANK { YAHOO JAPAN } ALLIBBA 40% OWNED BY YAHOO USA AND RUN BY JACK MA WHO HAS MAJOR TIES TO THE CHINESE GOVERNMENT AND OPENED THE DOOR TO INDIA IN DEC WHICH LAID OUT THE WORK FOR YAHOO TO OPEN ITS LARGEST RESEARCH AND DEVELOPMENT CENTER IT EVER MADE JUST RELEASED IN THE LAST 3 WEEKS IN YAHOO NEWS ALONG WITH THEIR RELEASE TO THE SEC WITH THEIR GUIDANCE FOR THIS QTR AND THEIR OUT LOOKING FORECAST. MICROSOFT SHOULD JUST RAISE THE BID WITH NOW NEWS CORP TO 38 TO 40 DOLLARS A SHARE AND INCLUDE SOFTBANK AND ALLIBBA IN THE TALKS AND CLOSE THIS DEAL NOW! BEING HOSTILE WILL UST BRING RESENTMENT AND A CLASH OF THE DIFFERENT CULTURES WE ARE DEALING WITH. ALL BLAME SHOULD NOT BE PUT ON YAHOO'S JERRY YANG! MR BALLMER HAS JUST AS MUCH BLAME IN THIS MATTER BECAUSE OF HIS THREATS AND I WOULD SAY POOR BUSINESS SENSE WHEN DEALING WITH OTHER DIFFERENT COUNTRIES AND CULTURES. IT IS WELL KNOW THE WAY HE DOES BUSINESS AND THE EU AND ANTI TRUST ISSUES OF OTHER DEALS STAMPS IT ALL OVER THE PAPERWORK AND NEWS FOREIGN AND USA. MR BALMER JUST RAISE THE BID AND SIT DOWN AND ALSO HAVE ALLIBBA AND SOFTBANK JOIN IN AND CLOSE THIS DEAL NOW! GOOGLE AGAIN WILL GIVE YOU PROBLEMS THEY ARE ALREADY FINDING WAYS TO GET PART OF YAHOO COMING I THE BACK DOOR BY AOL 5% THEY OWN. THEY DID IT BEFORE TO MICROSOFT AND IT LOOKS LIKE THEY ARE DOING IT AGAIN AND IF YOU LET GOOGLE THEY WILL SUCCEED BECAUSE OF AUGUST 1ST THE CHINESE GOVERNMENT CAN NOW JOI IN REGULATORY STATUS AND WITH JACK MA'S OF ALLIBBA CONTACTS WITH THEIR GOVERNMENT CAN MAKE THIS MERGER EVEN MORE HARDER TO COMPLETE IF YOU DONT CLOSE IT NOW.

2008 Apr 11 11:28 AM

[James Z:]

Ｍｒ．Ｒａｎｄｙ，　Ｉdon't know why you hate Yahoo so much. But you have to remember what is the purpose for Microsoft to buy Yahoo in the first place. They need Yahoo badly to compete with Google. Sure, Mr.Soft can walk away, play all these nasty cards, crash Yahoo investors. So what? At the end, they'll stay at the same ground and watch Google dominate the whole online world.

Buy Yahoo at $31 is dirt cheap. If Microsoft can't pay $40, forget about the deal. Let Google kills Microsoft in few years.

2008 Apr 11 12:49 PM

[Randy Smythe:]

James Z,

The reality is; the true value of a company is how much somebody is willing to pay for it and when there is only one bidder they can set their price.

I appreciate Yahoo's attempts at gaining some type of leverage, but the end result will be the same and at this point all they are going to do is piss off MSFT by their delay tactics.

This is business, not charity. Why should MSFT pay anymore than they have to, especially since nobody else is bidding.

It would take real balls to walk away right now but I think they should. Yahoo will only have themselves to blame.

2008 Apr 11 02:05 PM

[kurt walter:]

Microsoft should not buy Yahoo. It will be a big error. Usually these huge takeovers turnout to be stupid. Instead of buying old Yahoo, Microsoft should think about the future and buy smaller technology companies that are on the cutting edge. I would rather buy hundreds of those types of companies than Yahoo. The odds of getting a few great winners from the small firms is much better than swallowing Yahoo.

2008 Apr 13 01:29 AM

[sv_observer:]

[Comment edited for abusive language. Commenter put on notice] Is there anyone who thinks the Yahoo share price would bottom out at $19 if MSFT pulls their offer? I'd expect it to go down to $15 or less, depending on Q1 results.

2008 Apr 13 05:53 PM