Microsoft and Yahoo

Both in the mainstream TV news and online there seems to be a lot more noise than signal about the Yahoo Microsoft merger situation. I still think that Microsoft plans to acquire Yahoo and that they will find a way to make it happen over the next few months.

This view seems to put me in the minority because many are saying the deal is "dead". That is technically true of course - Microsoft withdrew their offer yesterday - but Ballmer's letter made it very clear that he was still open to a sale, and I think a quick read between the lines suggests he is trying to set up Jerry Yang for a hard fall. Without help from Google it'll be tough for Yang to keep his post after spearheading the effort that will effectively revalue the stock from Microsoft's top offer of $33 to tomorrow's open which is likely to be in the low $20's.

Techcrunch is reporting that the valley rumor mill suggests Yahoo is trying to get a Google deal announced before tomorrow's opening to avoid a major Yahoo selloff, and given the very favorable view of Yahoo from top Googlers Page, Brin, and Schmidt and their mutual distate for all things Microsoft I think this deal is probably going to happen, though I also think it will not do much to immediately prop up Yahoo's stock price which is likely to go down $5-$8 at tomorrow's open and possibly even more if frustrated investors decide it's time to give up on the company.

Disclosure: Long on YHOO

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

News Corp: "Not going to get into a fight with Microsoft" over Yahoo

Yahoo's chances of eluding a Microsoft aquisition dimmed today after comments by Rupert Murdock, chief of News Corp who said:

We're not going to get into a fight with Microsoft, which has a lot more money than us,"

Yahoo has been working very hard to avoid a Microsoft takeover, with CEO Jerry Yang stating in a recent letter to shareholders that Yahoo feels the Microsoft offer substantially undervalues Yahoo. However many market watchers see the takeover as very likely, either by eventual capitulation of the current Yahoo board or by their replacement in a proxy battle that Microsoft seems likely to win.

Today's statement from News Corp is another nail in the CEO coffin that Microsoft appears to be building for Yang and at least some of the current Yahoo board members.

Disclosure: Long on Yahoo

CES 2008 - Yang & Filo on Yahoo's Future

Jerry Yang spoke about Yahoo a few hours ago, and I'd have to say the talk was lackluster given the amount of attention the markets are paying to Yahoo leadership right now, and given the slick Gates keynote of yesterday. (C’mon Jerry - no Guitar Hero action?).

Yahoo spent a lot of time talking about and “introducing” Yahoo Go” Version 3, a product I that I think is not all that familiar even in many "insiders", but Jerry treated Yahoo Go as if it was a household word.

Yahoo Go did look neat - a lot like the MS mobile phone innovations shown yesterday which also offer excellent info+browser+mapping+data integration for phones.

Also announced was an expansion of mobile and widget platforms to make them more “open” and therefore more appealing to developers, though I’m not clear how significant this will be. In my opinion Yahoo does a brilliant job innovating for developers and then fails to "get the word out".

Yahoo, like Microsoft yesterday, noted that they are looking at *billions* of mobile users and that although PCs are still important to them it’s clear that mobile is the bright and shining star where innovation will be happening.

After the talk I had a chance to interview co-founder David Filo, who had just come in for a few comments at the end of the talk and was hanging around afterward. Like many Silicon Valley elites David was engaging and personal.

Filo confirmed that David’s plans are to ease out of some of his technology management roles at Yahoo while Jerry’s intention is to stay engaged into the foreseeable future as CEO. When Terry Semel left the company it was often suggested that Yang would not stay long and would be more of an interim CEO, but those rumors appear to have been unfounded.

I asked David if he’d met with Bill Gates during CES. He said “I haven’t”, which leads me to my current working hypothesis which is a little wild, but that’s what blogging is for!

The hypothesis is that the Gates Keynote last night and the Yang talk this morning were not coincidental, but were the result of meetings - probably last night - between Gates, Yang, and perhaps former Yahoo CEO Terry Semel. I’ll certainly take David at his word that “he” did not meet with Gates. Semel was *in the audience* this morning but was not introduced.

I should note that when I pressed David to talk about a potential merger he suggested he feels Yahoo has a lot to do themselves before moving in that direction, but he also noted how the industry moves in fast and furious ways. He actually asked *me* what the advantage would be to that. I’ve written about that before here at the blog but in short it’s that Yahoo+MSN would be able to fight Google in ways neither appears to be able to do alone.

So I’m not predicting a merger/buyout but I sure wouldn’t rule it out, and I’m guessing there are informal talks going on - probably here at CES.

Disclaimer: I’ve got some Yahoo Stock. Not that it’s making me any money mind you, but I’ve got some.