After Yahoo officially rejected Microsoft’s takeover offer on Monday, saying it was too low, Microsoft ominously, albeit diplomatically, replied that Yahoo’s response was “unfortunate” and that its proposal was “full and fair” and repeated earlier statements that it might consider “all necessary steps” to ensure the deal is completed. Does this sound like dialogue from a classic Mafia movie to you ?
The Yahoo Board, in an official statement, said
“the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders.”
This leaves the door open for negotiations on a higher bid price. Or, failing that, Microsoft might take a more aggressive stance and bring its offer to sympathetic shareholders and try to oust the Yahoo board or force Jerry Yang and company to go along with the deal.
In the absence of another bidder, there is no reason for Microsoft to raise its offer.
On the other hand, an acrimonious proxy war would be detrimental to the interests of both camps and would have far-reaching consequences once the merger is finally consummated, which, according to Microsoft, is sure to happen sooner or later. Microsoft shares have dropped since the bid was made public. A hostile takeover, particularly if prolonged, might drive share values even further down. Moreover, any bad blood between the parties would spill over into the transition period when the Microsoft team finally takes over. Nobody wants that, except perhaps the folks at Google.
My guess is that a friendly deal will be worked out, at a price closer to the US$40 per share that Yahoo wants.
But then, Microsoft is now aggressively preparing for a proxy fight to oust Yahoo’s directors and take over.