Microsoft-Yahoo Water Torture Trickles On--But For How Long?

Posted by: Rob Hof on February 19, 2008

So now, Microsoft’s putting out signals that it’s ready to rumble, with plans to authorize a proxy fight to replace Yahoo’s board if it doesn’t accept Microsoft’s first and only offer of $31 a share.

As Henry Blodget at Silicon Alley Insider points out, it would be more surprising if Microsoft didn’t proceed with at least the appearance of an intention to ratchet up the negotiation-by-press that in recent days has left things at a standstill. But it’s still unlikely that Microsoft wants to go this route, so no doubt this message is intended simply to put pressure on Yahoo’s board to get a move on. Sure, a proxy fight is way cheaper than a raised bid, but Microsoft CEO Steve Ballmer knows full well that a proxy fight entails other less quantifiable but no less real costs, such as several months lost to a still-hard-charging Google, the departure of Yahoo talent it would rather keep, and an adversarial situation that can’t help the already monumental integration challenges Microsoft will face in swallowing Yahoo.

Next move in this chess game is probably Yahoo’s. It could come in the form of finally making a backdoor approach to Microsoft. But it’s quite possible Yahoo will try another round or two of trying to convince Microsoft (and more to the point, Yahoo’s own shareholders) that deals with News Corp. or Google—or maybe even overseas moneybags or partners such as Softbank, which (like Yahoo) owns stakes in both Yahoo Japan and China’s Alibaba—are more possible than they look right now.

If Yahoo dallies too long, though, this drip-drip-drip is likely to move into a more aggressive form of water torture.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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