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Summary:

Now that Microsoft has withdrawn its bid for Yahoo, the Sunnyvale, Calif.-based Internet company is facing some rocky times, which leads us to believe that Microsoft might come back to the table, and offer a lower price for Yahoo. Continue Reading.

A few days ago I pointed out that Microsoft’s bid for Yahoo was a checkmate kind of a move: Yahoo couldn’t win from this attack. Today, by pulling its bid for the Sunnyvale, Calif.-based search company, Microsoft proved that again, and showed why it is still the Prince Machiavelli of Technology. Here is why:

  • Yahoo has no real suitors and its viable options as a standalone company are limited.
  • By choosing to sleep with Google, Yahoo has shown that it has no faith in its own online advertising capabilities and thus has admitted tactical defeat in the marketplace as far as advertising is concerned.
  • The price of Yahoo’s stock is going to decline in reaction to this withdrawn bid.
  • Microsoft is rumored to have made a bid for Yahoo at $41 a share last year, only to have Yang & Co. say no. They said no to the more recent $31-a-share bid. (Apparently, Microsoft raised it to $33 a share, and Yahoo wanted $37 a share. See AllThingsD) If the stock skids to, say, $21 a share, the shareholders are going to be might pissed. Remember, there are no permanent friendships on Wall Street. (Paul Kedrosky calls some of them “collateral damage.”)
  • Expect shareholder lawsuits. In other words, at a time when Yahoo, its management and its board of directors need to be focused on rebooting the company, they are going to be distracted by these nagging problems.
  • Imagine the employee morale. How long before we see an accelerated exodus of talent?
  • In 12-14 months from now, when things are going to seem very bleak, Microsoft will make another bid, about $10 less than what it was offering and Yahoo is going to take it.
  • Steve Ballmer’s words are going to haunt Yahoo for a long time. He sounded ominous in the press release: “I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares…By failing to reach an agreement with us, you and your stockholders have left significant value on the table. But clearly a deal is not to be.”

    As they say…checkmate!

    More reactions:

  • OStatic agrees with me — Microsoft will be back!
  • Big Picture: Maybe the Fed ought to start a YLF — a Yahoo lending facility, that is.
  • Photo by Alan Light, Courtesy of Wikimedia.

    1. Let’s Get the (Yahoo-Microsoft Blogging Party) Started | Mark Evans Saturday, May 3, 2008

      [...] heavyweights – CNet, GigaOm, TechCrunch, Paul Kedrosky, BoomTown, CenterNetworks – have already weighed into the fray with [...]

    2. “Imagine the employee morale. How long before we see an accelerated exodus of talent?”

      You sound silly. Imagine the employee morale if you were acquired by Microsoft and had to wonder what happens next? Is our culture going to be trashed? Is Microsoft going to cut my project because its now redundant?

      One day you’re working for a well regarded company and the next day you’re working for a bunch of assholes.

      I’m guessing morale was boosted today. How are Steve Baller’s words ominous? MS says stuff all the time that doesn’t come true? Remember the predictions about Live.com? How well did that pan out? What about his comments on Vista? That’s turning out well too!

      I own a small amount of Yahoo! stock and I’m happy with the results.

      You analysts are so silly. You all proclaimed this a done deal. Rather than admit a mistake in judgment you dig a deeper ditch.

    3. Anthony

      You are happy that the deal isn’t getting done, and I am happy for you, and every single Yahoo who feels like you do. But there many others who wanted to see the deal done, for reasons that are other that yours. There is going to be discontent and you will see it around you.

      Mistake in judgement? Where did you get that? I think the deal was a disaster to start with, said that as much and it is disaster to the end . For Yahoo!

    4. You’ve got a typo in your third bullet point:

      Microsoft is rumored to have made a bid for Yahoo at $41 a share, only to have Yang & Co say no. They said no to $31-a-share bid.

      It was $31 a share, not 41….

      Easy to miss, so hope you don’t mind the heads-up.

    5. It’s official. “We don’t want you anymore.” Bad Boy Ballmer to Yahoo! | ajb{log}: learn something new each day Saturday, May 3, 2008

      [...] acquisition offer to Yahoo! where they rejected. It’s also all over the blogosphere here, here and [...]

    6. Alan Wilensky Saturday, May 3, 2008

      I had the scoop on this from an insider at an investment bank branch office in Redmond. Microsoft was mentally out the deal months ago,

      http://bizcast.typepad.com/clients/2008/02/newscorp-yahoo.html

    7. Breaking news: Microsoft walks away from Yahoo deal | Tech Sanity Check | TechRepublic.com Saturday, May 3, 2008

      [...] Microsoft To Yahoo: Take a Hike! (GigaOm) [...]

    8. checkmate for google that is.

    9. @ Steve…

      There was a rumored $41 a share bid last year. That was prior to the current $31 a share bid (or $33 a share rumored bid.)

      Hope that clarifies your question.

    10. Steve – the other rumored bid of $40+ a share was in 2007 (according to the rumors, I think Terry commented on this recently?) One can see why it would be hard to accept $31 or even $33 if you’d turned down $40 previously (pride and all that).

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