Sunday, February 10, 2008

Will Microsoft go DEFCON 1 on Yahoo?

According to the Wall Street Journal [a paid publication], it looks like the Yahoo! (NASDAQ: YHOO) board will reject Microsoft's $31 buyout offer. Basically, the company wants at least $40 (hey, why not?).
So, now the ball's in Microsoft's (NASDAQ: MSFT) court. What to do? There are several options.
Of course, Microsoft can up its bid. But why? After all, who can really compete against Microsoft? In other words, why should Microsoft bid against itself?
The #2 option: go hostile. This means filing a tender offer and waging proxy fight. In other words, shareholders will be able to make up their own minds. And, given that the Yahoo! shareholder base has changed significantly (that is, with lots of money-grubbing hedge funds), I think there will be lots of pressure to get a deal done.
True, the hostile approach may be scary to Yahoo! employees. But, I have to assume they also realize that Microsoft is going to gut headcount anyway.
In fact, I think a hostile approach can actually get to a negotiation -- and perhaps a small boost in the offer.
Something else: speed is important. With the election year, it's not easy to predict who will be in the White House -- and how a new regulatory regime may impact the antitrust implications of a Microsoft-Yahoo! combo.
Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates

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