A month has passed since Microsoft made its bid, and Yahoo’s negotiating position has gotten worse, not better:
- Team Yahoo has explored half a dozen Microsoft “alternatives,” but none seem compelling enough to persuade shareholders to forgo the Microsoft deal.
- Yahoo’s share of the search market has continued to deteriorate.
- Online advertising in key verticals such as financial services has softened.
- Microsoft’s bid has distracted the company, if not thrown it into chaos.
- Yahoo implemented a huge, company-wide change-in-control severance plan that could cost an acquirer more than $1 billion, making the overall company worth less.
- Google’s stock has tanked–suggesting that, in the absence of the Microsoft bid, Yahoo’s stock would have followed it down.
Microsoft, meanwhile, continues to move forward with its proxy-fight plans and has a reasonable chance of getting the entire board fired at the shareholder meeting in early summer.
Yesterday a Microsoft SVP was quoted as saying the companies are having a “close dialogue.” In the next couple of weeks, we expect that an informal “dialogue” will become formal talks and that Yahoo will eventually agree to the deal.
We also continue to expect that, at the 11th hour, Microsoft will raise its bid price by a couple of dollars. But given that Yahoo’s negotiating position continues to deteriorate, it seems less and less likely that the total value of the bid will be significantly higher than the original $31.
Given the direction of the economy, the likely trends in the company’s business, and the very real threat that Microsoft can get the board sacked at the shareholder meeting, we think time is working against Yahoo. As shareholders, therefore, we hope the formal talks begin sooner rather than later.
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