Now that we have heard both versions - Ballmer's and Yang's, I find Yang's version as more credible. Ballmer has emphasized that the main reason for the failure to close the deal is difference between the bid and the ask. Yang and Sue say that even if they had agreed on a price, it would just take the discussions to the next level. They still had a lot of things to discuss and agree on - namely, the valuation guarantee, regulatory issues etc. Since MSFT never brings up or talks about these issues, which are quite important in my opinion to the acquired party, they don't seem to be serious about paying up the appropriate price and acquiring Yahoo. This also explains their abrupt walk without indulging in serious negotiations.
Even now MSFT doesn't seem serious because they keep coming up with these ridiculous proposals of acquiring parts of Yahoo. Why should Yahoo agree to any of these? Is there one good reason? Only thing that MSFT brings to the table for Yahoo is cash. Since MSFT is interested in the deal and not YHOO, the terms have to be closer to YHOO's expectations. The people who like to berate Yang, need to understand this and the fact that all he is trying to do is get a better deal for YHOO, which is his fiduciary responsibility and also a rational thing to do with him holding substantial amount of stock. There is no sense of urgency for Yang, because even if MSFT pretends to walk again and again, there will still be a MSFT put supporting YHOO stock and also the hope of potential deal with GOOG. This is the reason that Icahn and his buddies took out long term positions in YHOO.
One thing is clear after the interviews on D, that MSFT and YHOO are miles apart in terms of their perception of the current status. MSFT still believes and hopes that they will be able to acquire YHOO for cheap, especially with the shareholder activism. They are just keeping enough of an interest in the deal to dissuade YHOO from signing up with GOOG. Unless MSFT categorically declares that they are not interested in any kind of deal with YHOO, its difficult for Yang to sign up with GOOG and justify the action with the shareholders, especially before the proxy fight.
I think MSFT is betting that Yang will feel pressured and sign a deal as the proxy fight nears. However this is a risky bet, because Yang may indeed go for the proxy fight and win it. In that case it would be even more expensive for MSFT to come back to the negotiating table. Once the proxy fight is out of the way, there would be nothing to stop Yang from signing up with GOOG, which is his preferred alternative, as he has made amply clear several times. Both GOOG and YHOO have similar cultures and mutual admiration, so there shouldn't be any execution risks.
Now coming to the question of mis-management of Yahoo, I think it was primarily Terry Semel's vision that was responsible for Yahoo's strategic failures. Sue is a fine executive and Warren Buffet wouldn't have her on the BRK board unless he was convinced of this. Also, primary reason for Yahoo's decline in last couple of years, that is not obvious for most observers is that their competition GOOG is too strong and a better player. If you can hold your own against Michael Jordan and lose the game, you are still a decent player. If we compare to MSFT's failures against GOOG, even after billions of dollars poured into its online endeavors, YHOO seems to have done much better relatively.
Hypothetically speaking, if GOOG could acquire all of YHOO with no regulatory issues, what would be the market price for YHOO? The price that YHOO is looking for seems reasonable, if GOOG and MSFT had to bid against each other to acquire all of YHOO. MSFT is just trying to undercut its bid for YHOO, by using the regulatory hurdles against GOOG acquiring YHOO, to its advantage. Yang and GOOG guys realize this and won't let it happen, no matter what the rest of the world thinks.
Even now MSFT doesn't seem serious because they keep coming up with these ridiculous proposals of acquiring parts of Yahoo. Why should Yahoo agree to any of these? Is there one good reason? Only thing that MSFT brings to the table for Yahoo is cash. Since MSFT is interested in the deal and not YHOO, the terms have to be closer to YHOO's expectations. The people who like to berate Yang, need to understand this and the fact that all he is trying to do is get a better deal for YHOO, which is his fiduciary responsibility and also a rational thing to do with him holding substantial amount of stock. There is no sense of urgency for Yang, because even if MSFT pretends to walk again and again, there will still be a MSFT put supporting YHOO stock and also the hope of potential deal with GOOG. This is the reason that Icahn and his buddies took out long term positions in YHOO.
One thing is clear after the interviews on D, that MSFT and YHOO are miles apart in terms of their perception of the current status. MSFT still believes and hopes that they will be able to acquire YHOO for cheap, especially with the shareholder activism. They are just keeping enough of an interest in the deal to dissuade YHOO from signing up with GOOG. Unless MSFT categorically declares that they are not interested in any kind of deal with YHOO, its difficult for Yang to sign up with GOOG and justify the action with the shareholders, especially before the proxy fight.
I think MSFT is betting that Yang will feel pressured and sign a deal as the proxy fight nears. However this is a risky bet, because Yang may indeed go for the proxy fight and win it. In that case it would be even more expensive for MSFT to come back to the negotiating table. Once the proxy fight is out of the way, there would be nothing to stop Yang from signing up with GOOG, which is his preferred alternative, as he has made amply clear several times. Both GOOG and YHOO have similar cultures and mutual admiration, so there shouldn't be any execution risks.
Now coming to the question of mis-management of Yahoo, I think it was primarily Terry Semel's vision that was responsible for Yahoo's strategic failures. Sue is a fine executive and Warren Buffet wouldn't have her on the BRK board unless he was convinced of this. Also, primary reason for Yahoo's decline in last couple of years, that is not obvious for most observers is that their competition GOOG is too strong and a better player. If you can hold your own against Michael Jordan and lose the game, you are still a decent player. If we compare to MSFT's failures against GOOG, even after billions of dollars poured into its online endeavors, YHOO seems to have done much better relatively.
Hypothetically speaking, if GOOG could acquire all of YHOO with no regulatory issues, what would be the market price for YHOO? The price that YHOO is looking for seems reasonable, if GOOG and MSFT had to bid against each other to acquire all of YHOO. MSFT is just trying to undercut its bid for YHOO, by using the regulatory hurdles against GOOG acquiring YHOO, to its advantage. Yang and GOOG guys realize this and won't let it happen, no matter what the rest of the world thinks.