Microsoft Played Brilliantly, Handed Off Negotiations to Yahoo Shareholders

This Microsoft (MSFT), Yahoo (YHOO) story just can't get any more interesting. Now that MSFT has walked, what can we expect? Well, YHOO's management team look like fools, not only for misplaying their hand, but also for taking very lightly their fiduciary duty. Expect YHOO shareholders to revolt.

I would not be at all surprised if YHOO is forced to do the deal, because the board really cannot say anything to shareholders that remotely convinces them that the company is worth $37 per share or more. When the market thinks you are worth about $20 and someone offers you $33, you take it. End of story.

Even if MSFT really is out for good, this whole thing will help YHOO, because it will have to work hard to make meaningful changes now that they balked at such a great buyout offer. The problem is that morale at Yahoo is probably at rock bottom right now, so any sense of renewed independent creativity is easier said than done.

I am still pretty surprised a deal did not get worked out by now, but I don't think we've heard the end of it. If a deal does get done at some point this year, there will likely be an excellent entry point for MSFT created, so investors should keep that in mind as this saga continues.

Full Disclosure: Long MSFT and YHOO at the time of writing.

Comments

[WAKEUP:]

"When the market thinks you are worth about $20 and someone offers you $33, you take it. End of story." . . . Uh,
Yahoo actually closed, May 6, at $25.72. Headed UP. Without Microsoft . .

2008 May 06 06:43 PM