Microsoft Walks Away From Yahoo

Microsoft has walked away from the merger talks with Yahoo after the two companies failed to reach agreement on price per share. Microsoft had increased their original offer of $31 per share in cash and stock exchanges to $33 per share (I'm not clear if that $33 took into account Microsoft's lower price since the initial offer or did not factor that in). Most reports said that Yahoo eventually indicated they would sell for $37 per share.

My take on this is that this is a clever strategic move by Ballmer and Microsoft who I think still plan to acquire Yahoo. Yahoo's share price is likely to be hit fairly hard by this development effective at Monday's open, probably sending Yahoo down significantly though it would seem unlikely Yahoo will approach former lows.

The degree of the share price drop will depend on whether the market thinks Microsoft is out or just bluffing, but either way this is likely to create a lot of downward pressure on Yahoo's share price. Microsoft will likely start buying shares on the open market at these reduced prices.

In the next post we'll take a look at today's letter sent by Microsoft CEO Ballmer to Yahoo CEO Yang, which suggests it is lucky for Jerry that Steve didn't have any chairs handy.

CNET Reports
Disclosure: Long on YHOO