Yahoo’s stock (YHOO) was up again today and is now within striking distance of where it was when Microsoft (MSFT) still had a bid on the table. This run is largely due to the perception that Capital Research’s Gordie Crawford and other outraged shareholders are going to force a sale to Microsoft.
TechCrunch, meanwhile, is reporting a rumour that Yahoo’s board has authorised board chair Roy Bostock to call Steve Ballmer and try to reopen negotiations. TechCrunch uses this tidbit to suggest that Jerry Yang has been benched, but the more pressing question is whether the behind-the-scenes shareholder rebellion has a chance of success.
(And if Yahoo shareholders are going to bench anyone, they should bench Roy Bostock, who was either asleep at the switch during these negotiations or incompetent).
The bottom line? We think Yahoo’s chances of re-opening negotiations and getting back to “yes” are smaller than the market thinks. Unless Yahoo gets down on its hands and knees and begs, in fact, we think they’re just plain small.
First, because we actually believe the two sources close to Microsoft who told us today that Steve Ballmer has “moved on.” Steve made a generous offer for a company whose competitive position and fundamentals have been deteriorating for more than three years–and for three months, the company treated him like a disease. He also got an earful from shareholders and employees, who hated the deal from the get-go.
Second, Steve’s “we’ve moved on” tactic, however un-planned, is working better than any Yahoo acquisition tactic thus far, so why would he abandon it?
Third, we think the whole $33-bid-wasn’t-delivered-in-writing thing–though mostly a comment on the patheticness of Yahoo (why on earth does this matter?)–also reveals that Steve Ballmer was looking for an excuse to walk. And if he wanted an excuse to walk, he had probably already gotten over this deal.
Could the mercurial Ballmer be persuaded to change his mind? Yes. But, in our opinion, he’ll have to be persuaded to do so. And persuading him, we think, means walking in with:
- an offer to sell at no higher than $34 and probably lower,
- guarantees that all the key people will stick around and commit to meeting the company’s performance targets in the year of purgatory, and
- a written commitment that Yahoo will do everything it can to help the regulatory clearance process along.
In short, to persuade Steve to reopen negotiations, we think Yahoo will have to become the promoter of this deal–a position it will find quite unfamiliar after its stance for past three months. (And a far cry from Jerry’s remark last night that he’s “willing to listen.”) We also think that, to get the deal done, Yahoo might have to make major concessions that it would never have had to make if it hadn’t blown the first round of negotiations
So, could a Microsoft-Yahoo deal still happen in the relatively near future? It could. But the chances are considerably lower than the market thinks.