I Think Microsoft Is Bluffing on Yahoo

My friend Kara Swisher at All Things D seems convinced that Microsoft (MSFT) has shelved its offer for Yahoo (YHOO) for the last time, since a number of senior Microsoft executives “close to the dealmaking” told her they have walked away from the table for good, and have no interest in acquiring the troubled Internet giant — not even if Jerry Yang is ousted as CEO, or the stock drops below $20. I have no doubt that sources told Kara that, since her contacts are usually impeccable. But I think they (even this guy) are still bluffing, and are ready to pull the trigger on a Yahoo deal.

Why do I think that? Unlike Kara, I have no inside sources at Microsoft with knowledge of a deal. But I can’t help but think that if an acquisition of Yahoo made any sense whatsoever at $33 a share, how could it not make even more sense at $23 a share? (I’m not the only one who thinks so) Presumably Microsoft saw synergies between Yahoo’s search business and its own that made a takeover look worthwhile, or it wouldn’t have pressed so hard to get a deal done. So what has changed? Not much — except that Yahoo’s stock has tanked and the company needs Microsoft more than ever.

Yes, Yahoo has cozied up to Google and sold the soul of its search business. But the Google search deal isn’t exclusive, and there isn’t even a “kill fee” if Microsoft acquires Yahoo and then tells Google to take a hike. And I have to think that seeing Google get its hooks into Yahoo has to make Microsoft want the company even more.

Comments

[borisb:]

There is a breakup fee. And an employee severance package that runs up to $2.4 Billion.

2008 Jun 16 05:56 AM

[Yemmi:]

Sometimes, when you want something really bad, you can't take an entirely objective view on the issue.

2008 Jun 16 07:55 AM

[Jonha's Pop:]

I can't see Icahn taking that kind of hit.

2008 Jun 16 09:41 AM

[pediwent:]

No kill fee? As borisb points out, there is a $250 million fee for termination in the first 24 months in the event of a change of control. As borisb also points out, there is the severance package, but its actual cost is highly debatable - the $2.4B he mentions is the upper end of the range (essentially if every Yahoo! employee leaves and meets the requirements of the package). That's not to say a deal wouldn't still make sense (especially at $23/share), but there are some additional downside risks to figure into the decision.

2008 Jun 16 09:46 AM

[usbworks:]

Matthew, Matthew, Matthew.

There's a bug difference in thinking that you know something and knowing that you know something. That's the difference between you and Kara. She doesn't think, she finds out what Microsoft thinks. You on the other hand, are guessing.

Frankly, no gives a damn what you think!

2008 Jun 16 11:53 AM

[Superman:]

Yes, I agree. This is no less than a poker game where the participants put out bogus signals as well as real ones to trick their opponents into into a complacent or weakened posture and then pounce in for the kill. The stock has tanked again, but if Microsoft quietly steps in again, it can scoop up Yahoo at a greatly reduced price.

2008 Jun 16 12:16 PM

[Carl Icahnt:]

I noticed that there was no disclosure on the author's stock ownership or lack of. Matthew, are you in at say $26-27/share for a large stake and don't know what to do now? Grasping at hopes are we?

2008 Jun 16 01:15 PM

[mulls:]

Honestly, Seeking Alpha just let's any old moron write "articles" (read: glorified blog post) for them, and then actually tries to package it as informed news.

1) There is a kill fee.
2) Icahn is in at 24-26 per share - you think he's going to take 23?
3) The "soul" of it's search business is the search product / algo, not the monetization efforts behind it (arguably the most important part, but it's not the soul).

I want the last 5 minutes of my life back.

2008 Jun 16 01:18 PM

[TA:]

mulls nailed it - I want those 5 mins back too

2008 Jun 16 02:04 PM

[yahoo share...:]

On another note, I just got the stockholder meeting package today. There is a letter from the board of directors warning that "..... the election of Mr. Icahn's slate result in substantial erosion of stockholder value."

What do they call what they have done?? hahahah First turning down 37 a share, then 31, and finally turning down 33 a share and for what, $23.50 a share that it currently is trading at as I type this comment?

I hope the entire board gets replaced and will be putting all of my votes for Icahn's board.

2008 Jun 16 06:12 PM

[Belvedere R...:]

keep in mind that the stock was trading BELOW $20 per share when MSFT made their first offer. It's still trading at a 15% premium to that price, so it's not a logical conclusion that because the stock is trading at $23 it can be had for $23.

Either way, Yang had better start polishing his resume...

2008 Jun 16 10:15 PM

[babuds:]

"I Think Microsoft Is Bluffing on Yahoo". Yeah, you are right. That old wily fox of a co called MSFT, is holing up and looking for the right time to jump at its prey, after Icahn & co gores it up.

2008 Jun 17 09:42 AM