Lots of reports today on the Microsoft-Yahoo negotiation, which is now in its third month of drama and appears to be being negotiated primarily through the media. The WSJ in particular is serving as the court of popular appeal via very controlled leaks from both sides.
Yahoo’s key message is that they want a deal to happen but at a higher bid than the 62% premium Microsoft originally offered. Microsoft’s key message is that the economy has gone south since their original bid, and if they make a new offer it’s going to be lower, not higher. Importantly, they are also threatening to simply walk away from the deal.
Other interesting rumors:
- Various sources say Yahoo continues talks with News Corp., AOL and AT&T. No one seems to think these are anything more than smokescreens
- Microsoft has gone radio silent with their proposed Yahoo board members - if Microsoft intends to go to a proxy fight, they’ll need to notify them before any announcement
- Yahoo will announce Q1 earnings around April 15, the word around the valley is they’ll be surprisingly weak. They need to set the date for their shareholder meeting very soon.
Microsoft is probably hoping that their threats to walk will hit Yahoo’s share price and force them to take the deal. But those threats haven’t been enough to jitter the markets.
So Microsoft either needs to increase their offer by a dollar or two per share (which is what Yahoo shareholders are reportedly signaling to them to get their support), or cancel their offer.
If the offer gets pulled and Yahoo’s Q1 is as weak as people think it might be, their share price could fall back to $19. At that point, the other suitors, as well as private equity funds, get interested again and may make a move.
Yahoo may be able to kill the Microsoft deal, but it doesn’t look like staying an independent entity is going to be an option. Microsoft is the best outcome for everyone, in my opinion. They should take the offer, before their earnings announcement puts them in an even worse negotiating position.
My prediction: this deal gets done at a $1 - $2 per share bid increase, giving Yahoo a symbolic win, with an announcement in the next twelve days.
We can save Yahoo, they should know it!
I can only hope that the deal eventually goes through. The future of the internet landscape rests at the result of this deal going through or not.
Becomes of a boring game…
Agreed - my money’s on the deal going through. The economy is going to continue to soften, and the fed’s overactive role in manipulating the markets will do more harm than good.
My bet is that Yahoo is posturing for the best deal, Microsoft won’t have unlimited patience, but if they call their game of chicken, the deal will go through.
What they do with the company is another story…
Even if the offer increases and the deal goes through, it’s gonna be hard to call it a symbolic win. I think a well played defense does better justice.
It is surprising that Google is not being more pro active.
But one possibility is that the extreme controversy regarding the DoubleClick acquisition has made them very concerned about future acquisitions for fear of being seen as a monopoly.
It would appear that Google would be better than Microsoft.
Another option would be entertainment empires.
It is surprising that Yahoo is not seen as a commodity.
This is a sad ending to what was once seen as the leader of the Web just a few years ago
What went wrong? They seemed to be trying so hard over the past few years; why were they not able to make it?
Was there internal politics?
One day someone will do an exposee or biography that will reveal all.
@6, Google doesn’t have the money.
to become internet leader this cost is not to much for Microsoft
why Microsoft wasting his time
Mike,
Start a competition on what will happen like the one you did with YouTube.
Correct answer gets a 3G iPhone (when they arrive).
I predict that Microsoft with buy them at premium on the current deal of between $0.90 and $1
Do it!
Why only this news left in world?
http://feedshub.blogspot.com
The deal will fizzle out. There is too much resistance put up by Yahoo.
My prediction is that the patient crocodile waiting in the swamp will win.
The patient crocodile in this case being Rupert “I bite only what I can stomach” Murdoch.
$44 billion was a crazy offer to begin with. The expected returns would never be anywhere worth it. The best thing microsoft can do is walk away now when they still can. As for the google takeover is oh so much better than ms group, none of them are in this for benevolent purposes. at least with microsoft, there’d be a chance of an oligopoly.
mmmmmmmmm chicken!
very thorough and thoughtful analysis. Great!!
@7
Google actually has a stronger balance sheet than MS from a ratio perspective. MSFT has a lot less cash and short term inv. than it used to… so they will actually have to issue debt to take YHOO over.
I don’t think it’s a great deal. They’re going into this thing amidst a downturn in ad spending, if they pull out and start hording shares at $22-23 on the open market and claim a 5-10% stake of YHOO, they’re better off that way.
How can a Microsoft/Yahoo merger possibily be good for consumers?
My predictions: Microsoft will walk away and Yahoo will continue to grow in next two years with very slow rate.
I have no idea what is going to happen. Neither does anyone else not directly involved. Maybe Mike does. He is head and shoulders above the next best TC writer.
The problem is that Jerry Yang is making this about HIM and HIS Yahoo! that he remembered founding fourteen (14) years ago as a list of websites. The truth is that Yahoo! is an internet brand that has survived a web implosion, and it is time for Jerry Yang to let Yahoo! run its natural course. But (and there is always a but) the decision makers have become greedy and are biting the generous Microsoft hand that is feeding him. If they do not accept this offer (which won’t happen if greed is truly a factor) and Microsoft pulls back, the results will not be positive.
I hope M$ walks away and then Yahoo sues their asses off for all the damage inflicted with this unethical media manipulation.
@15, wrong. wrong. wrong.
The offer was a 62% premium and there are no other offers. I’m not an economics major so can someone explain to me why MSFT needs to increase their offer? Sure YHOO can just sit tight but it seems that if and when MSFT walks away, YHOO will fall under $20 and with the economy as it is, $10 soon after. I don’t think it’s the sale price Wang is concerned about but more that it is MSFT who is the suitor. He doesn’t like MSFT and if they give in they want MSFT to really overpay. If it was Apple this deal would probably be done.
I wish someone would overpay me 62% for my stock holdings.
Opps meant YANG, not Wang
to deny your share holders 44 billion makes you a f**king a$$hole.
The deal will happen. Yahoo’s stock price will continue to erode until it’s forced to show it’s dismal earnings on April 15th. If a deal is not announced by then, Yahoo’s stock price will plummet. If they don’t announce earnings on April 15th, they are stalling as this is the day they have historically picked to release earnings numbers.
Personally I think the deal gets done at the current offer.
How to play this? If you think the deal will get done. Buy YHOO - Yahoo all the way down until the deal is announced. Also buy more MSFT - Microsoft if it trades lower. Microsoft is cheap, even after a merger, and the Yahoo offer was originally valued at $31 a share.
Microsoft closed Friday at $29.16 (up $0.40, +1.51%, to $29.60 in after-hours trade) and Yahoo closed at $28.36 (down $0.87, -3.07%, to $27.49 in after-hours trade.
I say “Yang, get it over with. You loose!”.
I am definitely looking forward to a MicroHoo! ad platform. But please, make it a new one and not a cobbled nightmare.
@SueMe
uhh “unethical media manipulation”? The only thing unethical is the Yahoo board members greed in not taking this deal because it’s only a matter of time until he company slips to the point where not even MS will offer then anything remotely close to $40B.
http://www.collegemogul.com
Proxy fight is on in three weeks: http://biz.yahoo.com/prnews/08......html?.v=1
Full letter from Steve Ballmer to Yahoo!’s board members:
April 5, 2008
Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Dear Members of the Board:
It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% premium to its closing price on January 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy.
While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we’ve seen no indication that you have authorized Yahoo! management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.
During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo!’s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.
By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.
Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.
It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.
Sincerely,
Steven A. Ballmer
Chief Executive Office
Microsoft Corp.
Love that symbolic win bit!!!
Oh, I like Steve’s letter. I really want Yahoo to cave in quick, so I can start trading the money I have tied into Microsoft shares now. The last two months it has been basically dead money in Microsoft shares.
@harvey how is it dead money if Microsoft is paying you a dividend?
Dave, the Microsoft dividend is a puny $0.11 a share on a quarterly basis. So, if I were to hold MSFT all year I would get a dividend return of about 1.5% for the year (based on Fridays closing price of $29.16). Here’s the math…
$0.11 quarterly dividend x 4 quarters / $29.16 current stock price=.015089 which equates to 1.5089%.
I am currently down about 10% on this trade. Now once the deal gets done I can start trading in and out of that piece of money without fear of missing the announcement that the deal is done and Yahoo will be merging with Microsoft. I guess I could sell my shares and walk away with a 10% loss. But at this point I have 60 days or so into this trade and would kick myself if the deal happened right after I sold.
That is why it has been basically a dead money trade for me so far.
Michael - give us one reason for MS to throw in an extra dollar per share? I don’t see one. Especially after Yahoo has made it so difficult to acquire them with “change-of-control” bonuses, and packages. MS is a business not a charity foundation. Oh… maybe Bill and Melinda Gates foundation will donate an extra couple of billions to spend on reeducation Yahoo’s management?
it’s somewhat humorous to read some of the comments that people have written regarding the yahoo/msoft potential deal.
it’s particularly interesting in that people seem to have really brought into the msoft argument that they’re doing yahoo a favor by offering to the $44 billion.
maybe it’s me showing my age (wisdom!!) but i seem to recall a day about 15 years ago when mike dell suggested that apple disolve and give the funds to the shareholders, suggesting that dell was eating apple’s lunch, and that there was no way apple would recover. fast forward, and apple reversed the table, and had a market cap surpassing dell.
businesses are fluid regarding business cycles. in my mind, msoft smells an opportunity at acquiring an asset at a discount to what it can achieve. i can easily imagine a growth rate/opportunity for yahoo that will make the current $44 Billion look under valued.
my question for those of you who are screeming that yahoo should take the deal… a few years in the future, when you look back if the deal goes trhough, will you say that yahoo screwed up and gave the company away…??
now.. to be honest, yahoo has squandered numerous opportunities to dominate the internet/portal/advertising business.. but i’m reasonably certain/convinced that appropriate management can map its way through these issues.
peace…
sam
Mike,
YHOO has scheduled their Q1 earnings release for April 22 at 5:00pm ET
See here:
http://yhoo.client.shareholder.com/results.cfm
That makes MSFT’s deadline of three weeks for a deal to be concluded very intriguing.
Yahoo finance (and the type of eyes it attracts) is huge part of Yahoo’s value, IMO.
Why doesn’t MS just take that cash and make the best finance site out there? It wouldn’t be that tough to beat.
clean sweep
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