Microsoft's Yahoo Gameplay

Many Yahoo (YHOO) shareholders thought that Microsoft (MSFT) wasn’t done with Yahoo even when it said that it was walking away from the takeover bid. Some investors such as billionaire Carl Icahn decided to take matters into their own hands and work on a hostile takeover of Yahoo. Now Microsoft has come back to Yahoo and proposed a deal which would involve some sort of partnership or joint-venture rather than a full Microsoft takeover of Yahoo.

This is probably not what most of the arbitrageurs who are holding onto Yahoo shares hoping that Microsoft would buy them out were hoping for. And based on Icahn’s investment history, it is most likely not what he wants to get out of this deal. He’s bought shares at a discount to the price Microsoft offered for them and he wants to flip them over to Microsoft and take his profit in as little time as possible rather than waiting to see if a joint venture works out and benefits Yahoo. Is this a Microsoft ploy to make Yahoo shareholders worried that they will get a bad deal, and prompt them to force the hand of the board?

On the other hand, some analysts think this is a better deal for Yahoo as it will avoid the integration problems Microsoft would face if it were to buy Yahoo outright and absorb it as a division of Microsoft. And while that may be a relevant topic to Microsoft shareholders, is that really relevant to Yahoo shareholders? Many hedgefunds and institutional investors holding Yahoo shares are siding with Icahn and looking forward to a proxy takeover of Yahoo and a sale of their shares to Microsoft at the premium that Microsoft had offered.