MSFT Now Has More Leverage Than Ever Before

In the days leading up to Microsoft (MSFT) pulling the offer to acquire Yahoo (YHOO), one has to suspect that MSFT CEO Steve Ballmer spoke to a great deal of YHOO shareholders. Many had already shown a willingness to accept $31, and I presume the vast majority seemed to have indicated that they would accept $33, and that is why YHOO never got a penny more, let alone its “bong-induced” $37.

I initially sold 87.5% of my YHOO shares, then an additional 7.5%. I am now down to a mere 5% and still believe that MSFT will end up buying YHOO but for something in the $31-33 range, here is why:

• In MSFT’s latest response, it seemed to outline what angry shareholders need to do to force the Board to accept MSFT’s $31 offer, let alone its $33 offer.
• MSFT now avoided becoming the bad guy, instead turning itself into a prospective white knight against a strengthened Google (GOOG) (by way of a YHOO search deal) - AOL (TWX) merger (which let’s face it, now that the MSFT deal is off, will not be done).
• News Corp. (NWS), might change sides again, but what we fail to recognize is that by bidding $44.6B for YHOO at $31/share - and agreeing to $33/share or $46.2B - all would-be buyers know they must come in at $45B or so otherwise MSFT can always re-enter the picture.

MSFT’s withdrawal is at most a very short term lucky bounce for Yang and YHOO; in the short, mid and long term, it makes MSFT look like a welcome savior for YHOO investors.

Comments

[Yagottabe K...:]

Everyone - and by that I mean everyone in the Me-Too Media a Blogiverse - seems to be totally looking at this in the Microsoft-perspective way. I've literally seen NO articles/posts that discuss this from a Yahoo-perspective manner; absolutely EVERY single article/blog suggests that Yahoo made a serious serious mistake without even beginning to try to THOROUGHLY describe the Yahoo POV (for example, almost NO articles/blogs mention that this was not to be a totally-cash deal and that MSFT-the-stock was worth les than wehn it all began - this seems to be an outrageously important piece of information yet it's essentially totally ignored by all).

2008 May 05 06:21 AM

[Wee Moo Foo:]

Foo say all that matter is market point-of-view.
Everybody know Yahoo losing ground to Google. No debate.
Even Microsoft MSN cannot compare to Google. No debate.
A MSFT-YHOO combo could have stopped erosion in both company.
Yahoo 2009 growth of 20% is only a promise and a dream.
You want to be Yahoo employee facing costcutting layoffs?
Many Yahoo stock award are underwater Monday; is that morale boost?
Smart people leaving Yahoo fast, some by forced layoffs.
Ying Yang MUST show 20% profit this quarter or he gone!
How he do that if best employees leave. Yang already sold Alibaba.
What Yahoo deal spin can produce 20% profit this quarter?
Can you cash Yan's ego at your bank or broker?
Yang make stupid mistake, now his board also look foolish.
Wee Moo Foo shorted YHOO last Friday at close, today Wee happy.
Remember, Foo say money in bank have no point-of-view.

2008 May 05 06:56 AM

[atauber:]

Yahoo falls down MSFT comes back and pays $26-27

2008 May 05 07:03 AM

[CrossProfit_:]

Herman Manfred,

You are 100% correct. The only fly in the ointment is that no one seems to know what the Yahoo! POV is! We haven't heard a plausible explanation or future 'big' program on the scale of the so-so Panama, that may or may not work. We haven't heard the details of a possible GOOG alliance nor do we know where the 20% YOY growth is going to come from.

All we (analysts) get is general numbers without any substance to back them up. Now it could be that Yahoo! really does have a good plan and they want to make sure that it will work this time so they are tight lipped about the details. The problem with this is that analysts can't work with 'unknown information'.

Perhaps Yahoo! will have a press conference and shed some light about managements POV. We find it hard to believe that this is all some sort of negotiating tactic, or an ego trip as some suggest and tend to believe that Yahoo! does have an ace up its sleeve. Just one problem with that; we haven't a clue as to the color of that ace.

As we have called for recently and now reiterate: Yahoo! - can we have some color please?

CrossProfit

As an aside, the CrossProfit e-line on the website is based on the assumption that Yahoo! does have alternatives, though there is little transparency.

2008 May 05 07:15 AM

[rich168:]

YHOO vs. GOOGLE

then YHOO sleeping with GOOGLE.

YHOO will get scorned

that is the future YHOO is facing.... It needs to Fight..... MSFT could have offered YHOO a fighting chance.....

2008 May 05 07:27 AM

[N8too:]

Ballmer is brilliant. Just when everyone thought he'd go postal he does the opposite: he retreats. He broadcasts that he's been negotiating in good faith all along, even upping to $33 while at the same time broadcasting that Y[ang]HOO and board will destroy the company before selling to MSFT (aka his rationale for walking is the YHOO/GOOG search/suicide pact).

He pulls the verbal $33 offer 8 hours after he gave it, avoiding a Monday morning run above $30 which would only have served to embolden Yang and could have driven shares even higher as speculators got the impression MSFT would pay even more.

Instead, shares plummet and large shareholder are left irate with Y[ang]HOO and a board that are clearly not acting in shareholder’s best interest.

There’s only two ways for this story to end: Yang comes crawling back to Ballmer and accepts $33 (and possibly gets another $1 or 2 if he’s lucky). Ballmer gets what he wants: real negotiations instead of stonewalling and he buys YHOO for $34 to $35, the price he was willing to pay all along.

That, or Yang finds a new job.

Look for this deal to be done at $34 to $35 by the end of June at the outset.

2008 May 07 10:31 AM