Will shareholders sell out on Yahoo?

Soon, if Microsoft has its way, having a Yahoo e-mail or IM account will no longer be any different from a Hotmail or MSN account. Soon, Microsoft and Yahoo could be one...

Soon, if Microsoft has its way, having a Yahoo e-mail or IM account will no longer be any different from a Hotmail or MSN account. Soon, Microsoft and Yahoo could be one...big...happy family? Not quite yet, at least, not if Yahoo's board of directors and management team have their way.

Earlier this week, the Internet company rebuffed Microsoft's US$44.6 billion buyout bid, arguing that the offer undervalues Yahoo and is not in the best interests of its stockholders. Industry watchers believe Yahoo is holding out for a bigger payout from the software giant, which is hoping that a union with Yahoo would help the company capture 40 percent of the digital advertising market.

Others believe the Microsoft-Yahoo combination would prove to be formidable competition against Google.

Microsoft isn't giving up the fight yet, and has indicated its intention to "pursue all necessary steps" to bring the offer to Yahoo's shareholders and provide them an opportunity to "realize the value" of the bid.

I'm hoping against hope that Yahoo's shareholders will muster enough willpower to resist the lure of the green dollar and not sell out, but even I have to admit that it ain't going to be easy to refuse US$44.6 billion.

Why do I not want the shareholders to cash in? I shudder to see Microsoft get that big, and at the same time, I don't want the software giant to throw that amount of dough into an investment that may not yield returns enough to cover the colossal price tag.

Microsoft had acknowledged that it may borrow money to fund some of its US$44.6 billion bid for Yahoo. Company CFO Chris Liddell said the software vendor may opt to "borrow for the first time" and take on debt, rather than empty out its US$21 billion cash stack.

The great whale is short of cash? That's almost unheard of.

With a payout of that size, and possibly more if Yahoo is indeed holding out for a bigger offer, Microsoft will have little room for error.

Integrating any two companies isn't an easy feat, much less so when you're dealing with two which are one of the largest players in their respective markets. It's likely going to take a lot of sweat, many months--or even years--of complex integration work and probably even more moolah, before a Microsoft-Yahoo combination can see fruition.

To top it off, Microsoft will have to make sure it does the job so well that the US$44.6 billion-cheque will pay for itself sooner rather than later. It may be better off buying out China's Baidu.

Why do I care if Microsoft falls? Think about what the collapse of a company that size would mean for the world's economies, particularly, developing economies.

There's also the question of whether the respective regulators will allow the merger to go through, even if Yahoo shareholders give the deal a go-ahead. Does Microsoft really want yet another antitrust suit on its hands?

More importantly, do we want to see Microsoft get even bigger? And if Yahoo succumbs to the takeover bid, the Internet market will morph into a duopoly shared by Google and Microsoft.

That's not a scenario I look forward to.

In a nutshell, the fate of the online community and market competition may very well lie in the hands of Yahoo's shareholders. And I certainly hope the people at Michigan's Wayne County Employee's Retirement Systems, for one, are aware of their role in this debacle.