Friday, May 16, 2008

Yahoo and Google deal?

Of course in an ideal world, YHOO would prefer to continue with its merry ways and won't like to capitulate and sign a deal with GOOG. I believe that is part of reason for the resistance that they feel. That's also the reason that so far they didn't feel an urgency, especially after MSFT walked. But with Icahn breathing down his neck, Yang doesn't have the luxury of time. This would change the equation and force a deal with GOOG sooner rather than later.

Both Henry and joeblow have missed one probable reason why the deal hasn't been announced yet. Its the last and most potent bullet that YHOO has in its arsenal, to keep YHOO independent. So the timing of the deal is very important. I think they will try to time it in a way that takes the air out of Icahn's sails - probably closer to the proxy fight. Communicating with regulators to get their approval a priori, might also add to the delay.

GOOG is certainly not in a hurry to do this, since its primary interest is in keeping YHOO away from MSFT's clutches. Since MSFT walked, it made sense to go slow on this deal. But now that Icahn has added fuel to the fire, it has suddenly become urgent. That's what I mean by Icahn being the catalyst.

I don't think GOOG is in it for the money. The strategic importance of keeping YHOO independent is lot more than the financial interest. I think YHOO and GOOG can easily work out the long-term / short-term and other details of the deal, since their goals are same - to keep YHOO independent. The only tricky part is that YHOO would still have to at least pretend to make sure that it doesn't preclude or affect other future transactions.

From Bostock's letter "As we have publicly stated, our board continues to actively and expeditiously explore strategic alternatives to maximize stockholder value. None of the alternatives we are considering would preclude us from entering into a transaction with Microsoft or any other party."

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