What Happens If Microsoft Walks Away from the Yahoo Deal?
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Would Microsoft (MSFT) CEO Steve Ballmer actually walk away from the company’s bid for Yahoo (YHOO) rather than deal with the stresses and risks of making an unfriendly offer? It’s certainly possible. On the company’s post-earnings conference call last night, Microsoft CFO Chris Liddell said that if Yahoo does not agree to the current deal before the weekend, it would reconsider its options, which including going hostile or walking away.
In a post this morning, Henry Blodget asserted that there is a 60% chance the company will now walk away. So what would happen if they drop the offer?
- Yahoo shares would likely drop below $20 a share, back where they were before the MSFT bid. At that point, the stock already included at least a partial takeover premium; there had been widespread speculation that Microsoft might attempt an acquisition. And remember that the company has continued to lose market share in search, and the economy has since deteriorated. It’s possible the stock could go as low as $15. That would be a 43% drop from today’s price.
- Microsoft shares would likely stage a modest rally; the disappointing March quarter results will muffle any rebound, but I would not be surprised to see the stock gain a couple of bucks.
- Jerry Yang will have won a Pyrrhic victory. He will have fended off Microsoft, and in the process cut the value of his shares to roughly half what MSFT would have paid if Yang had agreed to a friendly deal. He will be faced with some unhappy shareholders and, I would suspect, considerable litigation.
- Steve Ballmer will be left to figure out a new plan for bulking up his company’s online business; do not be surprised if they end up buying AOL from Time Warner (TWX), and maybe even MySpace from News Corp. (NWS).
- Google’s (GOOG) Eric Schmidt can hold a celebration; his two key rivals will have been weakened after weeks of struggling over an unsuccessful deal. It is possible he will continue to pursue a deal to provide ads to Yahoo, but it seems unlikely such an arrangement would win regulatory approval.
- For large Yahoo holders, the prospect of MSFT walking would either be a huge buying opportunity, or a disaster, depending on your perspective. Legg Mason’s Bill Miller was quoted in the Journal a few weeks ago saying he would simply buy more stock if Microsoft walked and the shares tanked. Maybe he’d do that, but in the interim his fund’s performance would suffer the consequences.
Today, Yahoo shares are down 94 cents, or 3.4%, to $26.36, the lowest level in a month. Microsoft is down $2.07, or 6.5%, to $29.73. Google, by contrast, is holding its own.
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This article has 13 comments:
L. Johnson
The Wind
run, don't walk away from the deal. take a few billion and start a separate unit to focus on wireless web search, entertainment, etc. a few billion more on an alliance, merger, or purchase of a wireless provider. set up a network for mobile computing.
get the young turks in there to run it.
the future is the convergence of all things mobile.
will it happen? no. why? ballmer's hubris. by the way, where is gates in all of this? why no public comments?
Mojobeta.