Sunday, May 18, 2008

Microsoft's New Deal

Let's review this step by step:
1. Jan30th - MSFT announces a low-ball bid for YHOO, picking the most vulnerable time for YHOO. The result MSFT stock drops about 10%, YHOO up about 45% since then - still no deal. Score MSFT (0) - YHOO (1)
2. May3rd - MSFT walks thinking that YHOO will tank to the teens with no bid from MSFT and that'll show them Yahoos! Surprise surprise - YHOO and MSFT stocks virtually unchanged since then. Score MSFT (0) - YHOO (2)
3. May18th - MSFT panics at the fearful prospect of a world in which GOOG and YHOO are partners. The deal seems imminent within days based on leaks from both YHOO and GOOG. Icahn proxy fight acts as a catalyst to speed up this process. Something needs to be done and fast. And this is the best they can come up with? No wonder they are so screwed.

Let's parse the statement:

"In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business.",

Our plan of "walking" failed miserably as demonstrated by the stock market. YHOO is getting cozy with GOOG and this is our last chance. Hopefully we don't screw-up this time.

"Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo! Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.

We can't afford YHOO at the current price and valuation guarantees that YHOO BOD is looking for, without screwing our stockholders even more than we already have. We'll try buying again if Icahn can do the dirty work for us, (Icahn - wink, wink) and hands us YHOO on a platter. Until then, since we can't afford the car, we'll try to lease it.

"There of course can be no assurance that any transaction will result from these discussions."

Of course we are not sure if we can ever lease the car since we pissed off the dealer and there is dealer's cousin (GOOG) who already wants to lease.

Yahoo's response to the latest FUD from MSFT:
- You can't buy us, nanny nanny boo-boo...
- You can't buy us, nanny nanny boo-boo...

I think what really happened here is MSFT no longer believes in its convenient argument so far that DOJ would try to block any YHOO-GOOG deal. Its panicked about this possibility and is having nightmares. It realizes that GOOG is smart enough to structure the deal in a way that addresses any DOJ concerns and get a kind of pre-approval for the deal. Look at their performance in the FCC wireless spectrum bids and closing of doubleclick.

Also, they are indicating some support to the Icahns and Paulsons, hoping they can win the proxy fight. Next month should be very interesting, because MSFT may go further and try to get actively involved in the proxy fight if YHOO spurns them again and signs up with GOOG, which is a very real possibility.

Also it gives a potential brownie point for GOOG, if it can prove that MSFT's proposal for partnership with YHOO is non-competitive and its own proposal is more open and competitive. This should probably make the approval from DOJ and the job of selling the deal to YHOO shareholders easier. So my expectation for the score tomorrow -
MSFT (0) and YHOO (3).

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