Friday, May 23, 2008

Last chance for MSFT?

As I have been saying, MSFT is between a rock and hard place here. If they panic and buy all of YHOO in a friendly deal for ~$35, look for their stock to trade around ~$25, at least in the near term. This will be because of the valuation guarantees and the collar in any deal that YHOO agrees to. The price will be between the $33 - $37 range that has been discussed, but it will be a capitulation by MSFT, because of the valuation guarantees. The stock market will quickly figure this out.

If they give up and let GOOG sign a long-term deal with YHOO, the MSFT stock may get a temporary bump, but it would be a strategic blunder long term, because they would never be able to get the scale to compete effectively with GOOG. Its articulated very well in Ballmer's "walk" letter and also the transcript of the town hall meeting.

I think YHOO BOD is now is a much stronger negotiating position with the shareholder's meeting pushed out after the next earnings call. Don't believe all the rumors and innuendo about YHOO board coming out in the press. They are most likely stories planted by MSFT. YHOO hasn't even acknowledged that they are specifically talking with MSFT about breaking up YHOO. The only thing coming out of YHOO is the news about imminent deal with GOOG. This is probably the last weekend for MSFT to put up (i.e. pay up ~$35+ on YHOO's terms) or shut up, because YHOO would want the revenue bump from GOOG deal ASAP, so that it is in a good position to win the proxy fight in end of July.

No comments: