Chan's Personal Blog

Here's the latest news in the Yahoo/Microsoft drama. Microsoft gave us a deadline to reach a deal by April 26, 2008 12:00pm or face a hostile takeover. On April 26, the time ran out, with no deal in place. Yahoo has remained defiant and has continued to argue that $31/share for the company is too low.

Everyone is now bracing for Microsoft's next move. The Microsoftees have said they'll probably announce their next move early this week. They have several options on the table right now.

1. Go ahead with the hostile takeover, and try to put Microsoft friendly people onto the Yahoo board of directors.
2. Raise the offer to try to sweeten the deal.
3. Walk away from the deal.

Each option has its pros and cons. If they go with the hostile takeover, it can take some time, and it'll be a fairly ugly affair. In this scenario, the Yahoo poison pill will become active, and employees can leave the company at a huge cost to Microsoft (employees are currently entitled to a hefty severance package in the event of a hostile takeover).

If they raise the offer, it might be enough for a friendly merger. However, if they raise the bid, Microsoft would have to take out debt to finance the deal. I doubt current Microsoft shareholders would appreciate that because Microsoft is currently a debt-free company which is an excellent problem to have. If Microsoft does this, I'm sure their stock will drop more.

If they walk away from the deal, then Yahoo's stock will probably take a large drop. In addition, it doesn't conclude that battle between the two companies. If Yahoo deteriorates more in the future, then we'll be weaker, and even more vulnerable to a buyout. Microsoft could simply come back during a very dark hour and offer the same bid (or slightly more), and we'll be very hard pressed to reject it. A similar tactic worked during the Oracle VS BEA Systems hostile takeover.

The Silicon Valley Insider has an article discussing the next possible moves in more detail. The article is entitled, "Next Move in the Microsoft-Yahoo Battle: Analysts, Wall Street, and SAI Readers Weigh In."

Any predictions on how this story is going to unfold?

As you may or may not know, Microsoft has been trying to buyout Yahoo. The plot has thickened immensely in the last week. A disclaimer before we start, the opinions expressed in this article do not reflect the opinions of Yahoo; these are my opinions and mine alone.

Lets start by introducing the actors of this plot.

• Jerry Yang, CEO of Yahoo
• Google, needs no introduction
• Steve Ballmer, CEO of Microsoft (featured in the video below)
• Rudolph Murdoch, Evil Emporer and CEO of News Corp. Owner of the Fox Network and MySpace
• Time Warner, who owns AOL (I'm surprised that they're still around too.)

So a few months back, Yahoo had already rejected Microsoft's bid of $31/share for Yahoo. On the weekend, Microsoft sent a letter to Yahoo telling us to stop dragging our feets and accept the offer. The letter says that Yahoo has no other viable alternative. The offer would expire in three weeks. This threat was supposed to scare us into submission because many believe that Yahoo's stock will plunge from $28/share now to $19/share if Microsoft pulled the plug on the deal.

At this point, things were looking kind of dark since it looked like Yahoo was out for the count, and resistance against Microsoft was futile. It was inevitable that they would take us.

That's when Jerry Yang of Yahoo launched the counter attack.