Microsoft To Yahoo: Take a Hike!

A few days ago I had pointed out that Microsoft’s bid for Yahoo was a checkmate kind of a move: Yahoo couldn’t win from this attack. Today, by pulling its bid for the Sunnyvale, Calif.-based search company, Microsoft proved that again, and showed why it is still the Prince Machiavelli of Technology. Here is why:

Yahoo has no real suitors and its viable options as a standalone company are limited. By choosing to sleep with Google, Yahoo has shown that it has no faith in its own online advertising capabilities and thus has admitted tactical defeat in the market place, as far as advertising is concerned. The price of Yahoo stock is going to decline in reaction to this withdrawn bid. Microsoft is rumored to have made a bid for Yahoo at $41 a share last year, only to have Yang & Co say no. They said no to the more recent $31-a-share bid. (Apparently, Microsoft raised it to $33 a share, and Yahoo wanted $37 a share. See AllThingsD) If the stock skids to say $21 a share, the shareholders are going to be might pissed. Remember, there are no permanent friendships on Wall Street. (Paul Kedrosky calls some of them collateral damage.) Expect shareholder lawsuits. In other words, at a time when Yahoo, its management and its board of directors need to be focused on rebooting the company, they are going to be distracted by these nagging problems. Imagine the employee morale. How long before we see an accelerated exodus of talent? In 12-14 months from now, when things are going to seem very bleak, Microsoft will make another bid, about $10 less than what it was offering and Yahoo is going to take it.

Steve Ballmer’s words are going to haunt Yahoo for a long time. He sounded ominous in the press release: “I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares …By failing to reach an agreement with us, you and your stockholders have left significant value on the table. But clearly a deal is not to be.”

As they say… checkmate!

More Reactions:

OStatic agrees with me, Microsoft be back! Big Picture: Maybe Fed ought to start a YLF, a Yahoo lending facility that is.

Photo by Alan Light, Courtesy of Wikimedia.