Thursday, May 15, 2008

YHOO MSFT deal breakers

Don't count Jerry and YHOO's current board out yet. They still have couple of moves in their arsenal.

First, is that YHOO-GOOG talks are still ongoing with a possible deal next week.

The second is YHOO's response to Icahn.

I find YHOO's version of merger talks with MSFT more credible than the version put forth by MSFT. The key issue is that MSFT never specified how they would ensure "certainty of value" and "certainty of closing" in its so called $33/offer. Mr. Ballmer's letter is silent on those details. Even in my previous comments, I mentioned that these reasons in addition to the difference in expectation on the share value ($37 v/s $33) were the deal-breakers.

I don't see how the activist shareholders can address those issues. I think the most likely outcome is that the activist shareholders would act as a catalyst and force the current YHOO BOD to take quick actions like selling off asian assets and signing deal with GOOG, in order to maintain the share value and also keep the company independent. We'll see how this turns out, but this is my strong belief in the eventual outcome. The alternative of MSFT acquiring YHOO at ~$35+ doesn't seem likely because of MSFT's unwillingness to pay that much and also potential negative effect on its own stock.

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