Microsoft-Yahoo! Is Neither Good nor Bad - Just Ugly

A curious undercurrent to the Microsoft Corp. (MSFT)-Yahoo! Inc. (YHOO) duel is the subtext in much of the commentary that effectively frames the deal in ethical terms. As in, Microsoft CEO Steve Ballmer is "wrong" for trying to buy Yahoo! for the lowest possible price and, if possible, driving the company out of business; or Yahoo! chief Jerry Yang is "wrong" for rejecting a deal; or Carl Icahn is on the side of the angels or the devils--take your pick--for trying to force the companies into a transaction.

A variation on the theme is that it is either a "good" thing or a "bad" thing for Microsoft to buy Yahoo! in whole or in part. By extension, executives with the companies, and their respective shareholders, are being either truthful or dishonest (your pick) in their statements regarding the other side.

This recent post from TechCrunch's Mike Arrington is typical of the genre, although he's by no means alone in suggesting that it is somehow Microsoft's responsibility to buy Yahoo!. "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," he says. "Yahoo is standing at the altar waiting for you to say 'I do,' Microsoft. Time to put up or shut up."

But why, and by what standard? If Microsoft, like Sauron eyeballing Frodo into a nervous breakdown, can stare Yahoo! into obsolescence, why shouldn't it? Arrington says he favors a deal "because the health of the Internet requires a competitive search market." And so it may. But that's not Microsoft's concern, nor, its shareholders will contend, should it be.

Part of this is the usual media reflex to reduce convoluted affairs--M&A, in this case--into tidy narratives, complete with good guys, bad guys and, if necessary, a deus ex machina to bring the story to a rip-roaring close. Duality--light versus dark--sells. Companies happily play along, recognizing that controlling the spin can advance their interests and distract folks from less mediagenic considerations, like whose wallet a deal benefits most.

The only trouble with all this is that questions of right and wrong, of fiduciary responsibility, of what's "best," dissolve in the acid-bath of vested interest. What's left is an alphabet soup of claims. In a free market, the "good," in the metaphysical sense, inheres in a stock position, not in some trumped up notion of what's just or fair. Microsoft wants to destroy Yahoo!? C'est la vie--the software maker's shareholders should applaud. Yahoo! acting against the interest of shareholders? Fine, dump the stock or keelhaul management. Activist investors slathering butter on their bread? Pension plan participants will pass them the knife.

Not that rational arguments shouldn't be made about, say, whether a Microsoft-Yahoo! or Google (GOOG)-Yahoo! union violates antitrust law or even threatens innovation. That serves a real purpose--to preserve competition and benefit consumers (although antitrust enforcement, hostage as it is to political theatrics and at its core an approach to balancing competing interests, obviously isn't immune from simplistic moralizing.)

But mergers happen within a bird's nest of investor, corporate, regulatory and social interests--sometimes aligned, frequently conflicted, always tangled--that defy easy analysis. If Microsoft buys Yahoo!, in all likelihood one set of interests will cheer, another will weep and pundits will be damned to figure out whether right, in the end, triumphed over wrong.

Comments

[Randall Arnold:]

Great analysis, and I agree 100%. I had my own heartburn with Arrington's naive take on this debacle. Some people get too emotional over these things...

2008 Jul 16 11:13 AM