From SILICON ALLEY INSIDER: After Yahoo’s dramatic backpedal yesterday, investors are now assuming that Microsoft (MSFT) and Yahoo (YHOO) will come to an agreement–soon–at about $34 per share. Based on what has emerged about Steve Ballmer’s mindset in past few days, however, we think this is less likely than the market thinks.
What The Market is Assuming:
Yahoo opened yesterday around $22.50, down $7, and Microsoft opened above $30, up more than $1. Why? Because the market initially assumed the deal was really off. (In the absence of any possibility of a deal with Microsoft, Yahoo would probably trade around $20-$21, but even yesterday morning there was some hope alive).
As the day went on, however, as Yahoo shareholders publicly spanked Yang & Co, there was increasing speculation that Yahoo would be forced to cave and that a deal would get done. And at the end of the day, Yahoo did cave, acknowledging that its $37 price demand was just a negotiating play and that it would be willing to sell for less.
On the surface, this makes a deal seem far more likely. But don’t forget about what we’ve learned about Steve Ballmer’s thinking over the past few months.
What the Market is Missing:
Since Saturday, Yahoo has launched a PR offensive to try to get itself off the hook for blowing the negotiations. The message of this campaign is that Yahoo showed that it was willing to come down in price, moving from $40 to $37*, and that the negotiations were going fine–but that Steve Ballmer suddenly decided to walk. Also, Yahoo has said, Microsoft’s bid increase to $33 wasn’t really real because it wasn’t delivered in writing.
Both of these details are designed to make Yahoo look less like a bunch of boobs, but as we wrote yesterday, both are also revealing. Here’s the bottom line:
As of Saturday afternoon, Steve Ballmer no longer wanted to do this deal at any price.