Sunday, July 13, 2008

Latest maneuver from MSFT

This latest asinine maneuver from MSFT will only strengthen the support for Yang in the proxy fight. Everyone that I read has been critical of this move and folks like Fernando who were avid supporters of Icahn are switching sides. MSFT is playing all these games in such an awkward manner that you gotta wonder if someone is sleeping at the wheel there.

All those folks (Henry included) who claim that Yahoo is now begging for a deal, seem to have lost perspective. YHOO hasn't budged from its position. They countered MSFT's $33 by $37 earlier and were hoping for a deal in the $35 range. They have backed down by about $2 to $33 which is just 6% lower than what they were looking for. During this timeframe MSFT and the overall market has gone down by much more. So realistically speaking its an improvement over the $35 that YHOO was looking for earlier. This is a very smart move by YHOO, because it shows the true colors of MSFT. It makes it obvious that MSFT never intended to guarantee the valuation of the deal and were never serious about their $33 offer as they claim to be.

Here is an excerpt from my other comment showing, what the deal would be worth today if YHOO had accepted the $31 stock+cash offer from MSFT.
"MSFT's only well-defined offer for YHOO so far was for $31 / share, half in cash, half in stock. MSFT stock has lost about 20% during this time. So that deal would be worth about $27.9/share today. MSFT stock has lost about 20% without the bid being accepted by YHOO. If YHOO had accepted the bid, its not unreasonable to assume that MSFT may have lost about 10% more. This would put the deal around ~$26.25. Then there is regulatory uncertainty and almost 9-12 months of scrutiny. Discounting that YHOO would probably have traded close to ~$25 had Yang accepted the original $31 offer from MSFT. It has been trading in that ballpark during the last few days. The market and economy have severely worsened during this time. That would have put even more downward pressure. So it wasn't illogical to have rejected that offer."

In light of the above comment and the fact that YHOO is negotiating for $33+, it seems like YHOO is negotiating from a position of strength and is confident of winning the proxy fight. If YHOO wins the proxy fight, all this bad blood from MSFT and talk of firing the current board will only make the cost of eventual acquisition go up for MSFT, with lot less value in return for that. The simple logic that a weakened YHOO is great for GOOG, which will then deploy its additional strength against MSFT seems to beat the execs at MSFT. That's the reason that they are playing these silly and childish games with YHOO.

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