Posted by: Rob Hof on February 21, 2008
As everyone waits for Yahoo to make the next move in Microsoft’s unsolicited bid to buy the Internet portal, I’m starting to wonder if the ball’s actually still in Microsoft’s court. As it stands, Yahoo has declined Microsoft’s initial offer, and as it has courted a number of alternate bidders with no apparent success yet, Microsoft this week ratcheted up the pressure with a threat to launch a proxy fight to replace Yahoo’s board. But it sure doesn’t look like Yahoo is in any big hurry to respond.
Why? For one, talks with News Corp., AT&T, and others aren’t all dead yet. But Yahoo also may understand that it has a bit of leverage of its own: Microsoft clearly would prefer to avoid a proxy fight. Even if Microsoft wins it, it potentially extends the time it takes to win Yahoo by several months. Meanwhile, more good people exit Yahoo and Google gets to keep gaining ground on both Yahoo and Microsoft.
And there’s another reason Microsoft may not want to follow through on its threat: It could lose. …
At least one big Yahoo investor, Legg Mason's Bill Miller, has said he thinks Yahoo is worth closer to $40 a share, consider higher than Microsoft's $31-a-share offer, whose value has declined to under $30 along with a swoon in Microsoft shares. Even with the considerable overlap in institutional shareholders between the two companies, it seems like most Yahoo investors want at least a nominally higher price. Certainly, if Yahoo simply caves, plenty of lawyers will claim just that.
Perhaps Microsoft, in threatening a proxy fight, has a good sense that Yahoo shareholders will go along with an offer that, after all, is about 60% higher than Yahoo's pre-bid stock price. But it hardly seems like a lock.
Still, the proxy fight threat has set the timer ticking. It's quite possible that Microsoft will proceed with at least the appearance of a proxy fight, and Yahoo will proceed with at least the appearance of a possible deal with someone else. Once things approach a point of no return, i-bankers for each side will move negotiations from the press to a conference room, and both sides will in all likelihood come to a middle ground.
Maybe Microsoft will say a couple extra billion dollars in debt, which would get paid back with a couple of months of cash flow, is well worth the cooperation of Yahoo. For its part, Yahoo may extol the virtues of hooking up with a strong technology partner, especially since Microsoft has promised to keep the hallowed Yahoo brand alive.
There's a recent template for such a deal: Oracle's purchase of BEA Systems. BEA resisted Oracle's initial $17-a-share offer, asking for $21. It didn't come up with an another offer, but it still managed, in the end, to get $19.38 a share. BEA's advisor on the deal: the same Goldman Sachs team advising Yahoo.