Microsoft to Yahoo: Take a Hike!


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  • The price of Yahoo’s stock is going to decline in reaction to this withdrawn bid.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.



    Early action on the market indicates that both YHOO and MSFT are losers here. GOOG is the only winner. But, I guess it will be more clear by the time the market closes.


    It seems Yang is interested in only satisfying his interest err.. should I say ego, not his employees, board or shareholders, by making sure this doesn’t happen.

    Yang, for YHOO turnaround his long term plan –
    Deal with Google on outsourcing ad engine rather than using his own ‘Panama’ that his talented engineers built, which will long term be detrimental- no question about it!
    Google is obviously grinning and why not….

    Hope the board will punch some sense into Yang, not that this deal is out, otherwise Yahoo will soon be history in a much more unceremonious way.


    @Rav, Deal or no deal, I agree that the only winner in all of this is Google. Microsoft still has options in terms of acquiring other players, yahoo has none – I don’t see anyone preferring YHOO currency over Microsoft and/or cash. And of course, the deal may yet get done.

    Andy Gongea

    Good job,

    This is a good move for Microsoft. They displayed the true value of Yahoo which is not so big and now they can concentrate on purchasing proper companies. My choices:
    – Imeem
    – Meebo
    – Freebase
    – Corel

    Herman Manfred

    >>> …He sounded ominous in the press release…

    Well of COURSE he did!

    The game is STILL being played on this one – it is FAR from over.

    John Walker

    @anthony For your sake, I hope you own very little stock. Regardless of what you think morale is today now that MS walked away from YHOO, there’s no escaping what morale will be when stocks start trading Monday and the upcoming months.

    @d Really? I guess that’s the difference between working for a company and being a shareholder in a company. Your CEO basically just said “screw you” to the vast amount of people who own your company. Hope it works out for you. Pretty sure it won’t since it your company’s leadership just walked away from 70% premium for what the company’s worth. Usually, that doesn’t work out so well.


    Oh come on. Can you imagine Google being sold to yahoo 6 years ago ?
    Balmer is just trying to scare them, thats all. We all know that the guys at Microsoft are plain losers when it comes to internet.


    morale is going to be one of elation at yahoo. would you work for yang, or would you work for ballmer. that’s a no brainer – most yahoo employees would probably consider ballmer’s squeals and jigs at URL’s a blasphemy on the sacred ground.

    if at all, msft’s moral on their live division would be shot to bits due to this saga. it pretty much signals to them (esp ballmer’s letter) that their entire adcenter was going to be shut down in favor of YSM.

    the winner is very clearly google., and any little bit competitive fire yahoo had in it’s belly against google is now pretty much put out. sad for yahoo, and sadder for the industry. the fact is, neither company had a zero-sum feeling against each other the way ballmer thinks about google.

    if there are going to be regrets for employees, it’ll only be about why this happened this weekend and not next tuesday ;-) go figure.


    Om, normally I agree with most of your articles. But this is way off in my opinion. The whole premise of your article is that MSFT (no.3 in search) did a great job of weakening YHOO (no.2 in search). Although I don’t agree with this conclusion, still why would MSFT want to do this, instead of focusing its energy on no.1? If they really wanted to do this, aren’t they strengthening no.1 in the process?

    In my opinion, MSFT shot itself in the foot by this charade of a deal. YHOO was at ~$18 when the deal was announced and it will definitely end up higher than that tomorrow. Those who bought in YHOO after the deal was announced should realize that they were betting on a coin toss and just eat their short-term losses. The implied MSFT put is still there and that will limit the losses on the downside. If YHOO comes up with some deal to improve monetization, that should help as well.

    This deal has forced YHOO to evaluate all its strategic alternatives and focus on improving their monetization by signing up a deal with GOOG. It was a wakeup call for YHOO management. I expect them to announce something soon, as they have to justify rejection of a $33/share offer. This will cause GOOG to get stronger and YHOO become a stronger number 2 in search. MSFT would be a distant third and worse off than their original position.

    Any bounce in MSFT stock would be short-lived because by walking from the deal, they are just trading short term comfort, with a gaping hole in its long term strategy. Unless MSFT acts aggressively, it would end up like a 10-15 PE dividend yielding tech stock like IBM in a couple of years.

    The real winner is GOOG. Both MSFT and YHOO got distracted during the past couple of months and both of them are left in a state of disarray.

    Om Malik

    @ joshtabin

    I agree with you about AT&T. Add to the mix BT. I think they can make a joint bid for YHOO and that can be a friendly one. It would make perfect sense. We wrote about that earlier. link


    Om, kudos on a great post. I watched Buzz Bissinger’s rant against Will Leitch and bloggers in general earlier this week and it was apparent that he has not read your work. For over a century, we have lived under the illusion that mainstream media has been completely objective in their reporting of news and events when in fact it is often the facade for a lighter tint somewhere between orange and green.

    The majority of your comments are spot on although I disagree that no suitors are out there (Yahoo has value to someone, especially as speculation drives the price lower…it wouldn’t surprise me to see AT&T buy out what shares they don’t already own) or that an employee exodus is pending (it has been happening for some time…you know that).

    Keep up with this social media thing…I really think its got legs versus those other lipstick painted Web 2.0 hogs.

    Dominic Rivera

    Just when Jerry Yang thought that everything is behind him now, I believe otherwise. Everything will be starting from hereon for him to prove to shareholders that he made the right decision. Yang will be closely watched now by shareholders.


    I’m not so sure about your morale comment. I work at Y! and couldn’t be happier, even if my stock options will once again be under water. Paradoxical, I know. But I think a deal would have killed both companies. I’d rather have a job for a company that is changing the world and is profitable to boot. I don’t and won’t speak for others but I haven’t heard any of my colleagues speak positively about Microsoft’s offer so I don’t think morale will take as much a hit as you say. To the contrary, I do know more than a few who openly discussed walking away if the deal ever closed.

    As much as you might claim this is the death knell for Yahoo!, it is not. We can only label this event a failure or success in hindsight. Yahoo! makes its projected numbers and the Y! board will be called geniuses; if not, then this defining moment shows the board is out of touch with reality. Only time will tell. I think the glass is more than half full. :)


    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).

    Om Malik

    @ 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.


    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.

    Om Malik


    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!


    “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 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.

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