Microsoft-Yahoo: On To Round II

imageYesterday’s volleys between Microsoft and Yahoo (NSDQ: YHOO), though dramatic, pretty much played out as expected. Yahoo scoffed at Microsoft for lowballing its offer and Microsoft professed to be dismayed at Yahoo’s response. Now that the perfunctory opening statements have been read, the two sides can get to the hard part. We already discussed some of the options Microsoft has at its disposal, including raising the bid, going hostile and taking the case to big Yahoo shareholders. All of this is still on the table. The New York Post is reporting that Microsoft has hired a proxy solicitation firm to prepare for a more hostile effort, although even if Microsoft intends to sit down and discuss things with Yahoo, it makes sense for them to keep applying this pressure. Meanwhile, notes MarketWatch, Yahoo’s un-staggered board election, makes the company more vulnerable to pressure. As for what happens next, Wall St. analysts have been updating their predictions:

Mark Mahaney, Citigroup: Most likely scenario: Microsoft and Yahoo sit down and hammer out a deal at a new price. The fact that no other bidders have emerged and Yahoo’s board has come up with few other credible alternatives doesn’t give it much fight for other than a higher bid from Microsoft (NSDQ: MSFT). Much less likely scenarios: a white knight emerges (unlikely, because none have), Yahoo unveils a new strategic initiatives, such as a deal with Google (NSDQ: GOOG) (unlikely to satisfy shareholders), and regulators block the deal (which could happen along with the first possibility).

Marianne Wolk, Susquehanna: Wolk’s thinking is pretty similar to Mahaney’s, as she assigns a 75 percent probability to a deal happening, and a low likelihood of any meaningful alternative: “At $44.6 bln, Microsoft

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