Until today I’ve largely been a big supporter of Microsoft’s (NASDAQ:MSFT) efforts to acquire Yahoo (NASDAQ:YHOO). A couple of days before Microsoft placed its initial $44.6 billion bid for the company, I told Fox Business Channel that a Microsoft merger had to happen to save Yahoo (and I certainly wasn’t the first to say this, I just had magnificent timing).
Throughout the ups and downs and stupendous drama of the negotiations, I held firm that a deal was in the best interests of both companies. Not because I’m a huge Microsoft fan, but because the health of the Internet requires a competitive search market. Google controls too much market share and too much related search revenue. A counterbalancing force is needed to keep the system healthy. And Microsoft or Yahoo standing alone cannot counter Google.
But when Microsoft pulled its bid just as Yahoo was about to accept and replaced it with a search buyout deal that I described as equivalent to them trying to get the milk for free instead of buying the cow, I began to wonder if things were getting out of hand. Since then, Yahoo has quite literally prostrated themselves before Microsoft to get a merger done, even perhaps at a price much lower than Microsoft’s original bid. And Microsoft has largely toyed with them.
Yesterday’s shenanigans, however, clearly crossed a line. Microsoft and activist Yahoo shareholder Carl Icahn jointly announced that they’ve been talking, and that Microsoft may be willing to entertain a full buyout offer once again. But only on the condition that Yahoo’s board of directors is replaced: “We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the “Search” function with large financial guarantees or, in the alternative, purchasing the whole company.”
Icahn explained further, saying that Microsoft can’t be expected to let Yahoo stay in current management’s hands during the months-long closing period after a transaction is consummated. He added: “Jerry Yang and the current board of Yahoo! will not be able to “botch up” a negotiation with Microsoft again, simply because they will not have the opportunity.”
This is largely complete nonsense. During the transition period after a merger agreement Microsoft and Yahoo would be working closely and Yahoo would be unlikely to take any actions that jeopardize the deal. What’s far more likely is that Microsoft, led by CEO Steve Ballmer, have taken Yahoo’s rebuffs entirely too personally. It’s no longer just about business, it’s about destroying and humiliating the people who embarrassed Microsoft. And sadly, that has nothing to do with creating a balance of power in search.
Just as I criticized Yahoo for not quickly accepting Microsoft’s offer in early February before the mass executive exodus and destruction of shareholder value, I now point the finger at Microsoft. Yahoo is standing at the alter waiting for you to say “I do,” Microsoft. Time to put up or shut up.
I’m all for a merger. But I won’t stand by quietly while Microsoft destroys what’s left of Yahoo just because it can.