Yahoo shareholders and arbs (YHOO) are still acting as though Microsoft (MSFT) is going to raise its bid for Yahoo: Yesterday, thanks to the fall in Microsoft’s stock, the bid value had dropped to $28.87, while Yahoo closed at a hair over $29. The market, therefore, is assuming that at the very least Microsoft will raise its bid back to the much-publicized $31. It probably won’t.
We think Yahoo’s most likely response to Microsoft (perhaps today) will be: “OK, let’s talk.” What Yahoo will want to talk about first is why Microsoft should raise its bid to $35-$40. Microsoft will likely listen politely and then say “Thanks for the suggestion. Next topic?”
Yahoo’s next demand will likely be that Microsoft at least raise its bid back to $31, either by paying the whole takeout price in cash (and taking on more debt) or adjusting the exchange ratio (thus further diluting Microsoft’s shareholders). Microsoft will likely respond by saying, “Our offer was 0.9509 per share. The market has dropped significantly since we made our bid, and if we hadn’t made the bid, your stock would have dropped, too. So, again, thanks for the suggestion. Next topic, please.”
This latter Microsoft response might enable Yahoo to go back to its shareholders and say, “See what a bunch of bums these Microsoft people are? They got you all lathered up about $31 a share and now they want to steal the company for $29.” But after Yahoo shareholder gnash their teeth and curse Steve Ballmer, they’ll probably check the markets, remind themselves that if they say “no” to Microsoft the stock will drop not 7% but 33%, and then begrudgingly hit the bid.
One thing that Yahoo should insist on however: That Microsoft agree to bid a fixed price based on today’s stock price, so that, if Microsoft’s stock continues to decline, Yahoo shareholders won’t pay the price for that. The “new deal,” in other words, would be that Microsoft will agree to pay no less than a total of $29 per share, and if market conditions improve and the stock goes up, that the bid rise back to $31.
Yahoo’s Likely Response to Microsoft: “Let’s Talk”
Yahoo Board May Meet Today to Decide Company’s Fate
Introducing the SAI MSFT-YHOO Bid Calculator! (Check here for the current value of the bid)
Softbank to Save Yahoo? “Talks Have Just Started”
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.