After the drama of last week, Microsoft-Yahoo watchers are on the edge of their seats. Who will make the next move? How far will they go?
A Steve Ballmer butt-kicking “ALL IN” play would be fun, but the next moves are likely to be behind-the-scenes. (Unless the News Corp-Yahoo tie up we reported last night is rushed onto the official stage). Why? Because now that the companies have staked out their $31 / $40 camps, if either one officially budges so soon, it will look weak and/or desperate. And this perceived weakness will likely translate into the loss of a few more dollars and other concessions at the actual negotiating table.
So what’s likely to happen?
More negotiating and perception-creating through the press. Through anonymous sources and grandstanding shareholders, the companies have basically settled on a mid-$30s common ground. But to keep the pressure on, Yahoo needs to keep creating the appearance of having alternatives (such as the News Corp deal), and Microsoft needs to keep demonstrating that it is planning to go hostile (a last resort–and one that Microsoft might not be willing to undertake).
Back-channel conversations between bankers. The Yahoo and Microsoft banking teams are almost certainly talking behind the scenes as we speak–planting seeds, feeling each other out. We suspect Team Microsoft’s line is “Look, we’re willing to come up a little. Let’s get the teams together and we’ll talk about it.” Meanwhile, Team Yahoo’s response probably is, “Tell me you can get to $40, and we’re there. Otherwise, we’d rather spend out time talking with other interested parties.”
At some point–when Yahoo’s “alternatives” (YHOO) are exhausted (Google fell by the wayside last night) and/or Microsoft (MSFT) gets worried that either Yahoo is getting its act together or crumbling completely, one side will get flexible enough that the two sides will set up a meeting. Then:
- Team Microsoft will then immediately leak news of the meeting, because this will make a deal seem even more inevitable
- Yahoo’s stock will jump on the expectation that Microsoft will raise its bid at the meeting (which it will)
- The higher stock price will make it even harder for Yahoo to walk away and/or put together a compelling alternative
- The company’s will hammer out their differences and agree to a deal in the low-to-mid-$30s.
This process could take a while, though. There’s still some manoeuvring and canvassing that has to happen first.
If it takes longer than a few weeks to get to the table, Microsoft will likely have to make another public move, because the pressure will ease. But if Microsoft is forced by time into publicly raising its bid, the increase will likely be small–because Microsoft will need to keep some powder dry for the actual negotiations.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.