Microsoft should walk away from Yahoo

Microsoft should walk away from Yahoo

Summary: It's deadline day for Yahoo. Three weeks ago Microsoft CEO Steve Ballmer told Yahoo that it needs to negotiate about the software giant's $31 a share offer.

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It's deadline day for Yahoo. Three weeks ago Microsoft CEO Steve Ballmer told Yahoo that it needs to negotiate about the software giant's $31 a share offer. Since Ballmer's ultimatum there has been a lot of bluster, but little else. And it's quite possible that this weekend will be uneventful with neither party doing anything. How should Microsoft play this? It should walk away.

Microsoft CFO Christopher Liddell said on Thursday that the company will consider its options in the event that doesn't comply. Yahoo has no plans of talking to Microsoft unless it raises its bid. The Wall Street Journal reports that the two companies have been talking, but there's nothing concrete that would point to a deal by Saturday's deadline.

Good ideas for Microsoft abound (Techmeme). Kara Swisher notes that Microsoft should take its $44.6 billion and buy up a bunch of Web 2.0 companies including Facebook and LinkedIn. Henry Blodget puts the odds of Microsoft walking away at 60 percent. Those odds would have been shocking a few days ago--at least until Microsoft reported a mixed quarter.

Also see: Does Microsoft CEO Steve Ballmer need an intervention?

So why should Microsoft walk?

  • If Microsoft loves Yahoo it should set it free (and watch its market cap tank). If Microsoft really wants to show Yahoo that its $31 a share offer is fair it should let Jerry Yang, who has been steadfast in his belief that his company is worth more, live without the bid for awhile. Microsoft could back off, see how things shake out and bid again later.
  • Opportunity costs. Microsoft could do other things with its money. There's Salesforce.com, Facebook and a bevy of smaller tuck-in acquisitions that would make more sense.
  • The risks aren't worth it. Microsoft will face regulatory hurdles and disgruntled employees on both sides of the aisle. Meanwhile, Google will continue to run circles around both companies. Is it worth the effort?
  • Microsoft needs to squeeze Yahoo shareholders too. If Microsoft really wants to go hostile it should do a walk-away first to loosen up any Yahoo shareholders who think they can get $35 a share. Yahoo shareholders will be much more receptive to Microsoft's bid after a little market cap haircut. Nothing annoys shareholders more than watching cash walk away.
  • Microsoft has more pressing issues. Sure online advertising is a great business. But the software giant's quarter wasn't all that hot. Perhaps Microsoft should focus on its client business, which wasn't up to snuff this quarter.

Topics: Banking, Microsoft, Social Enterprise

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12 comments
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  • MS is blinded by the thought of ad revenues.

    They are letting everything else suffer due to the blinders Balmer is wearing.

    MS has some bad times coming their way because they simply forgot what brought them to where they are.
    bjbrock
    • MS should concentrate on only destroying themselves, not Yahoo too.

      Competition is the underpinning of the free markets usefulness, and MS just hate that idea.
      fr0thy2
  • I agree. They should walk away

    as Yahoo's stock will drop, then 6 months later they come back with a lower offer the board may take as "you don't allways get a second chance..."
    John Zern
  • RE: Microsoft should walk away from Yahoo

    MS needs another income growth as the OS and applications since they are not much room of growth (in % of market share, they are mature with limit growth. Merger with Yahoo is the fast way to gain more income. They had tried and fail with MSN and I don't see how they can compete without Yahoo. It is ridiculous to suggested that they can wait for couple of years to bevy of smaller tuck-in acquisitions. Yahoo is the best choice.
    Kwongnyc
    • Looked in the box and it's all upside!!!!!!

      There's a question you overlook in estimating the downside:
      did Microsoft learn any thing from its MSN experience?

      I have a feeling the deal is a mistake on Microsoft's part and if
      they walk away they will have reason to celebrate that day in
      the future. I don't base this on any great insight, it's just, this
      deal smells like a mid-80s "synergy" acquisition to me.

      Plus, Microsoft are being run by the same guys who signed off
      on the plan to kill Intuit by buying Great Plains. So, there's
      another question, did they learn any thing from that deal?
      DannyO_0x98
  • MS needs Yahoo

    MS needs another income growth as the OS and applications since they are not much room of growth (in % of market share, they are mature with limit growth. Merger with Yahoo is the fast way to gain more income. They had tried and fail with MSN and I don't see how they can compete without Yahoo. It is ridiculous to suggested that they can wait for couple of years to bevy of smaller tuck-in acquisitions. Yahoo is the best choice.
    Kwongnyc
    • Why?

      You come up with "income growth" as a reason, but why would buying Yahoo give them that?

      My first and most obvious reason why it would not, is that the takeover would be bound up in regulatory red tape for a long time, preventing them from earning. Next is the cost of the takeover (large intial outflow of cash, laying off of a bunch of microserfs and yahoos, more cash spent in the "adapting" of yahoo into Microsoft). Next, Microsoft's poor performance in the last quarter lowers the value of their offer, which means they'll likely have to pay more to get the deal done. Note that Microsoft's share price actually rose after they said they might walk away from the deal. To me that kind of indicates the market thinks the takeover was/is lame. Lastly, if it's going to happen it will be bitter and nasty, and that isn't going to earn them any money or mind/market share.Oh, and lest I forget, there's the poison pills that Yahoo put in place that don't help Microsoft either.
      zkiwi
  • Walk away, just walk away ...

    Microsoft should just walk away. The shareholders who count (large retirement and mutual funds) will roast Jerry Yang in his own juices and Microsoft can make a smaller, "Ok, we'll take it" offer and get Yahoo for a lot less than $31 a share.
    aureolin
  • RE: Microsoft should walk away from Yahoo

    Yea like Microsoft is ever gonna get Yahoo at a nickle a share or whatever there offering... If Microsoft isn't willing to pay what Yahoo is worth, then they won't get Yahoo. And if Microsoft knows what is good for business, then they will buy Yahoo for what it is worth, seeings how Vista was about as useful as an empty carton of ciggaretts.
    unidentified221
  • YAHOO! by Microsoft

    Bill Gates will not just walk away. Yahoo will lose its value if this deal does not work out. As of today many of Yahoo's shareholders are praying for the acquisition to push through.

    Yahoo will become YAHOO by Microsoft.
    YAHMic!
    billy yang
  • Microsoft should walk away from Yahoo, but won't.

    Now, a lot of the posters here are talking about tactics, and whether it makes sense for MS to walk away now or to launch a proxy war. From a strategic standpoint, there's no way they can walk away long term. Microsoft needs this deal, not for tomorrow, but for five years out. Online advertising is predicted to be a 100 billion dollar business in 5-10 years, and MS knows it can't compete for enough of that right now on its own merits. They believe Yahoo can. And they can't leave it all to Google, or they will lock themselves out of the most important source of revenue growth. They have to compete in this business area. Whether to consummate the deal now or wait a bit is a tactical decision, but there is no way MS walks away. Now or later, MS will acquire Yahoo.
    heres_johnny
  • RE: Microsoft should walk away from Yahoo

    Forget Yahoo focus on Enterprise business - Oracle or SAP as a target
    Nihon8888