Team Yahoo has done an excellent job of conjuring up some hypothetical “alternatives” to hitting Microsoft’s bid, including
- Google-search-outsourcing (just a business deal),
- AOL merger (good idea but not an alternative), and
- MySpace equity swap (an alternative, but also bad idea).
We put the odds that any of these will emerge as a credible alternative plan at less than 10%.
So, now that we Yahoo shareholders have concluded that it’s only a matter of time before Microsoft gives us the $35 we’re waiting for, it’s time to talk about Microsoft’s alternatives.
(Why does Microsoft need alternatives? Because Team Microsoft wants some negotiating leverage, too. Also, more importantly, because many of Microsoft’s shareholders hate this deal–which they should, because it’s going to be a disaster. One Microsoft shareholder wrote a letter to CFO Chris Liddell yesterday lambasting him for even considering raising the Yahoo bid. Other shareholders feel the same way, especially because Yahoo has no credible alternatives).
So here are some of the Microsoft alternatives we’ve heard about in the past 24 hours:
* Walk away. This is actually a great idea–because, again, the Yahoo deal is going to be a disaster. If we owned a couple hundred million Microsoft shares, we’d be beseeching Steve Ballmer to go this route. And we would be reminding him that, if he goes forward, and the deal is in fact a disaster, it will be his entire legacy. At this point, the odds of Microsoft going this route or slim, but they’re at least as high as a compelling News Corp-Yahoo deal.
* Walk away from Yahoo and buy Facebook instead. Unlike Yahoo, Facebook is now a hotbed of energy, innovation, and engineering talent. In many ways, it’s the future to Yahoo’s past. Facebook isn’t for sale, but an offer of $15 billion or so in cash would probably have the same impact on Facebook’s shareholders (except Mr. Zuckerberg) as the $45 billion offer has had on Yahoo’s: Sounds great!
* Refuse to raise bid. When you think about it, why should Microsoft raise its bid? Sure, Yahoo and big Yahoo shareholders are publicly invoking flimsy arguments as to why $31 is too low, but what do you expect? It’s not low on any traditional cash flow measure. It’s only low on “replacement value”–and if Yahoo continues on its current course, that replacement value will get lower all the time.
* Get Jerry and the board fired. Microsoft doesn’t want to go this route (it’s ugly), but it could if it had to. It has another month to put a slate of directors up for election. It then has another three months to campaign and bluster until the shareholder meeting. This will paralyze Yahoo for the entire period, turning the Sunnyvale campus into even more of a global job fair than it is now.
Bottom line: Yahoo’s alternatives aren’t really alternatives, and two of them–AOL merger and Google outsourcing have recently been discredited in the press. Yahoo’s shareholders are getting impatient, and Microsoft’s are getting more vocal about how it shouldn’t raise its bid by a penny. The advantage, in other words, is now shifting back to Microsoft.
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