UPDATE: Microsoft struck while iron was hot, firing a mid-Saturday ultimatum at Yahoo: Sign deal in three weeks or we cut bid.
After watching the “Microsoft (MSFT) evaluating Yahoo (YHOO) offer” story spread across the world’s publications yesterday afternoon, here’s what we think was going on:
- Microsoft is, understandably, impatient (and annoyed) with Yahoo’s intransigence.
- Microsoft has several reasonable arguments why Yahoo’s stock would be worth less today than when they bid on it, including deteriorating market conditions, loss of more search share to Google, loss of executives, implementation of fat severance plan, etc. In the NY Post this morning, someone–probably Microsoft–also introduced the idea that Yahoo’s Q1 might come in at the low end of predicted performance, instead of the middle or high end (i.e., that Yahoo blew the quarter despite having said publicly that it will be in line with its previous forecast). The Post also says that even Yahoo’s M&A advisor Goldman Sachs is frustrated with it, a nice detail that makes the Yahoo camp look fractured.
- Microsoft has a mercurial CEO whose reputation for sudden aggressiveness makes a hostile move seem plausible–a reputation that helps it in this case.
- Microsoft decided to increase the pressure on Yahoo by sending a detailed message directly to Yahoo shareholders through the press, a message in which it would suggest, obliquely, that it was considering cutting or pulling the bid.
- Microsoft leaked a carefully coordinated story and quotes to several publications yesterday afternoon. Some of the publications were able to get the sources slightly off message (thus the note in the NYT that Microsoft was NOT considering cutting or pulling its offer. Why would Microsoft want to reassure Yahoo investors that the bottom wasn’t about to drop out?). Note that almost exactly the same story appeared at nearly the same time in a handful of publications–same quotes, same details, same description of anonymous sources, but all without the publications referencing each other. This confirms that the story was a coordinated message rather than a single, unauthorised leak.
- Microsoft will see next week what impact this latest attempt at escalation has on Yahoo shareholders and Yahoo. Then, perhaps, if there is no movement, Microsoft will announce a public tender offer for Yahoo (an offer directly to shareholders), file a slate of directors, or otherwise take more aggressive steps. We doubt Microsoft will cut or pull the bid.
WHAT HAPPENS NEXT?
What is likely to happen? We expect that this full-court press press will likely spur some big Yahoo shareholders to call Jerry and tell him to start negotiating. Jerry will likely try to persuade these shareholders that he knows what he’s doing, that if Yahoo waits, Microsoft will raise its bid. We expect, however, that the big shareholders, like Microsoft, will have less and less patience for this.
If Yahoo doesn’t come to the table in the next week or so, we expect Microsoft will proceed with a tender offer, file its slate of directors, or make some other overtly hostile move. At this point, it might wait to see how Yahoo’s quarter and outlook are, betting that any weakness in the results or guidance will spur even more shareholder unrest and pressure on Jerry. This plan makes sense.
Business Insider Emails & Alerts
Site highlights each day to your inbox.