Mr. Ballmer: Pull the Yahoo Offer Now!

Includes: MSFT, YHOO
by: Randy Smythe

In this high stakes game of "Texas Hold-em" Microsoft (NASDAQ:MSFT) still has the upper hand and I believe they should take advantage of that position.

I wrote about this in February and Microsoft finally agreed with me, when Steve Ballmer "laid down the gauntlet" and gave Yahoo (NASDAQ:YHOO) three weeks to seriously begin negotiations on their proposed buy-out offer. Yahoo of course said no and began testing a relationship with Google, to outsource their paid search and once again rumors surfaced about a potential Yahoo/AOL deal.

It is like a high stakes game of poker. Microsoft knows they are playing with the best hand and Yahoo is bluffing, so Microsoft make a big bet to test Yahoo resolve. Yahoo calls that bet and raises. In this case Microsoft should go "all in" by pulling their offer. Basically saying, show us your cards.

IMO, Mr. Softy should pull its offer today! Don't let these other options for Yahoo gain any steam. Pulling the offer right now would deflate Yahoo's share price and cause investors to lose their lunch.

There are three reasons why Microsoft should pull their offer right now:

  • The Devil you know is better than the Devil you don't know - Microsoft has offered $41 Billion for Yahoo. An AOL deal can't match that offer in value and a Google relationship has huge anti-trust implications. The unknown is worse than the known for investors.
  • Yahoo announces earnings on April 22nd. If the Microsoft deal is pulled off the table now the next 12 days will be hell for investors. If earnings disappoint, Microsoft just comes back in and says the original offer is still valid. If Yahoo beats the street soundly (not likely) then Mr. Softy will have to up the ante. This may seem like a gamble to you and me, but I'm sure they have a good idea where Yahoo's earnings will end up.
  • They can always come back to the table and either start a proxy battle or make the same offer. If Yahoo is making their moves from strength then the offer will need to be increased. If they are bluffing, which it sure looks like to me, then Microsoft can maintain their original offer and look like the good guy at the same time.

Mr. Ballmer, don't give Yahoo an opportunity to gain any traction. Pull the offer now.

Disclosure: None

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