Yahoo's Tough Week Ahead

At around 4:30 California time Saturday news broke that Microsoft has formally withdrawn its offer to acquire Yahoo (see Ballmer’s email to Microsoft employees here).

Among other things, that ends a three month stock party where the market value of Yahoo jumped from about $26.2 billion to nearly $40 billion based on Microsoft’s offer to acquire Yahoo for $31/share on February 1. That run up included a 7% gain in Yahoo’s stock price on Friday alone, based on market anticipation of a negotiated deal that would be announced on Monday.

That party began the day after Microsoft made an offer to acquire Yahoo for $31/share on February 1.

Here’s what to expect now that Microsoft has withdrawn its bid:

• Google is still a wild card, and Yahoo may be sitting with them right now to try and iron out a search outsourcing deal. Of course, Yahoo has lost most of their negotiating leverage now that Microsoft is out of the picture.
• Yahoo shares don’t trade until Monday; however, Yahoo Japan’s shares trade on the Tokyo Stock Market beginning at around 4:30 pm California time on Sunday. Yahoo Japan, which is 40% owned by Yahoo, saw a similar jump in share price around the Microsoft February 1 announcement. How it does tomorrow may be an indication of what will happen to Yahoo on Monday.
• Yahoo shares will begin trading Monday morning at 7 am EST in off-hours trading. By the time the markets open at 9:30 EST, the fate of Yahoo’s stock will have largely been determined.
• Look for a barrage of shareholder lawsuits against Yahoo next week.
• If Yahoo gets down into the teens in stock price, look for private equity firms to start to take interest in the company.

Unless Yahoo pulls a very large rabbit out of a hat prior to trading on Monday, expect their share price to decline significantly. Yahoo has put in place a number of very expensive anti-takeover provisions and employee retention programs that the markets will factor in now that the Microsoft share price crutch has been removed. Also, their Q1 financial results, while above expectations, were not so materially positive as to offset the hit they are going to take.

In a nutshell, Yahoo’s scorched earth strategy worked. Now they have to live with their victory.

Google Wins

Google was the big winner in a Microsoft/Yahoo acquisition attempt, no matter what the outcome. But among the possible outcomes, a broken Yahoo and a frustrated Microsoft almost certainly result in increased market share for Google.

Don’t Count Microsoft Out Just Yet

There’s a reasonable chance that Yahoo tanks this week - really tanks. It’s not inconceivable that Microsoft could come right back to the table with a lower bid than the one they just pulled off the table. Don’t count Microsoft out yet - they may still get their win.

Original post

Comments

[pcat:]

This is about the way I see it,too.I would grab some yhoo in the teens because ms will be grabbing it too and the poison pill can be jambed right back up the wrong end by the courts.Can't break those laws protecting the shareholders with impunity.Courts take a dim view of the managment treating a public corp. like they own it.oh yeah,lawsuits will be filed and juries are going to yank yangs yang.lol

2008 May 04 04:39 AM

[jhcmal:]

Well, the result is against most people’s expectation. But rethink about the different corporate cultural backgrounds the two companies have, it is not hard to realize this possible outcome. Sounds a hindsight? Yes, it is.

Ballmer ’s hardball playing at the beginning and “microsofteded ” its position to sweeten the deal to $33 later and finally gave all up, all proved that Mallmer was not a good deal maker and might have taken a myopic view.
Was it due to his personality or due to culture issue? Maybe both. MSFT shareholders may take a deep release for the short while YHOO’s may take a hit. But Keep in mind, the market is to reflect a company’s long term value instead of the short eventually.

While Ballmer said MSFT can go forward without YHOO, I hope he is right or he may have made a big strategic mistake by walking away as time waits for no one.

2008 May 04 05:49 AM

[Crookedwood:]

Ballmer is a principled negotiator and as a stockholder (MSFT) I am pleased. Yes, now the market makes it's judgement and the pain of the holders of YHOO will be felt by the top management as well it should be. YHOO operates with delusions of grandeur. Poor leadership leads to poor stock performance.

2008 May 04 08:22 AM

[FranG:]

I will pay .25 cents for Yahoo stocks. Any offers?

2008 May 04 08:55 AM

[Jack Yetiv:]

I think what MSFT did has very little downside for MSFT--and may have a lot of upside. I would have done exactly the same--I would have raised my offer to the limit I was willing to pay--and then pulled it if it was declined, and then published my letter to Yang for the whole world (ie, angered YHOO investors) to see.

When MSFT first made the offer, Yang and company said the pre-offer stock price was not reflective of the value of the company, and MSFT's offer made the market realize what that value was. In addition, the earnings report hadn't come out.

Well, now the earnings are out, and all shareholders have now seen the "value" of YHOO. If YHOO crashes on Mon, as most expect, then Yang's bluff will have been called. If YHOO stock price languishes in the 20's or even the teens another month or two, and MSFT makes another offer at $31 (or maybe even less, but I doubt it, possibly even at $33), and Yang is already facing a bunch of lawsuits, I somehow think MSFT's second offer will be far harder to dismiss than the first one.

There is, of course, one other possibility, although I consider it unlikely, which is that Yang refused the upgraded offer because he has already arranged something just as good with GOOG. This seems unlikely in view of antitrust reasons. There probably will be more interactions with GOOG that will benefit both GOOG and YHOO, but probably not enough to get YHOO stock price back to the low 30's.

Jack Yetiv

2008 May 04 12:16 PM

[Cicero:]

Sounds to me as if TraderX lost big time betting on Yang. The sour grapes in his mouth have put tears in his eyes, which explain his view of that satisifed, confident grin on Michael's face. Don't be bitter TraderX, double up your bets on Yahoo instead if you're that sure of yourself.

NOTE FROM SA EDITORS: TraderX's comments were deleted due to abusive language and lack of content.

2008 May 04 01:19 PM

[weng ho teng:]

A great way to play the Yahoo/Alibaba.com angle is with Chinese B2B site subaye.com.

MYST.OB owns the site and it is taking share from a fading Alibaba..............t... a stock to own now.

2008 May 04 03:07 PM

[CrossProfit_:]

The 'best' article on Yahoo! since October 2007 is this one...
seekingalpha.com/artic...

Now for a dose of reality see...
www.crossprofit.com/vi...
See the 'News bulletin archive' (upper right hand corner) and 2007 chart as well.

Note that the evaluation line (e-line) for the remainder of 2008 is static as the possibility of a change in fortune does exist some six months down the road.

CrossProfit

2008 May 04 03:55 PM

[User 184619:]

I don't think MSFT will pass this candy, what MSFT wants to do is to scoop up cheap YHOO shares in the open market next few weeks, the price should be high teens to low 20s, after that msft will announce that the deal is done and pay jerry and the big fund managers $37.

2008 May 04 04:17 PM

[valueinvest...:]

As a MSFT shareholder, I never liked the deal to begin with and I hope that the stock can regain some of what it lost when the deal was originally announced.

2008 May 04 08:00 PM