Microsoft Chief Steve Ballmer spoke to the Microsofties today about the companies plans. For Yahoo merger followers there was nothign much new as he simply reiterated this point:
Related to Google and our search strategy are the discussions we had with Yahoo. I want to emphasize the point I’ve been making all along—Yahoo was a tactic, not a strategy. We want to accelerate our share of search queries and create a bigger pool of advertisers, and Yahoo would have helped us get there faster. But we will get there with or without Yahoo. We have the right people, we’ve made incredible progress in our technology, and we’ll continue to make smart investments that will enable us to build an industry-leading business.
Some would argue that the reason Microsoft needs Yahoo is that their online strategy has so far failed to do very much. My take is that they have not moved the online market as they’d hoped, but that they also have not worked nearly as hard in this area as they could have because Microsoft (correctly) sees that their huge presence in the software market is where the big money remains, at least for the next few years. They have chosen in large part to protect their huge revenue ship rather than act more aggressively and nimbly (and expensively) to find online revenues or pull market share from Google. I think many analysts – especially those in blogging – fail to recognize that Google’s revenues simply pale in comparison to Microsoft’s. Google has the lion’s share of online money but Microsoft still has the lion’s share of the lion’s share money, which is in software, gaming, and entertainment. I agree that the power curve is shifting from MS to Google, but MS remains the 800 pound revenue Gorilla. Money beats buzz to the bank every time, and this point is not lost on Microsoft or Google.
Yahoo and Microsoft haven’t been able to agree on very much over the last few months so it now appears fairly likely the battle will head into the shareholder meeting on August 1st.
Microsoft hasn’t lost many of these matches and the smart money remains on them to “win” this battle and take over Yahoo. My take is that there is now enough ego investment on all sides that you can expect Microsoft to be pretty ruthless in their efforts to replace the board and overhaul the company. Of course with with management leaving Yahoo at a record pace anyway, Microsoft is likely to inherit more of a management skeleton than a burden, and they are probably fine with this.
How poison will Yahoo make the pill? As a shareholder I’m concerned about this but comforted that the current board and Jerry Yang have a huge financial stake in this outcome. To Bostock and Yang’s huge credit they has been playing this game with their own money, though I’d argue they have not been playing it very well or with anybody’s best interests in mind (including their own). My take is that Yahoo simply could not readjust their expectations from the dramatic success story they enjoyed early on and the belief they could see that kind of success again. This gave them a perception of the current value of Yahoo that was completely out of line with the market perception, which by definition is the real value of a company. The $33 sale price has come from the desparate realization by Yahoo that they are going to lose the battle and possibly be forced to sell well below this price, though I think it’ll be in Microsoft’s interest to keep the tensions to a minimum and keep their new “post Yahoo merger” shareholders marginally happy with an offer above $30.
That said, Ballmer is clearly smelling the blood in the water and could probably force an eventual sale of Yahoo in mid to high twenties by jerking the strings for a few more months to soften up Icahn and other major shareholders who are clearly looking for something above the $31 offer Yahoo rejected a short time ago. Without Microsoft Yahoo’s share price would be well under $20 and this is now clear to everybody.
So the boxing match moves into the final rounds. It’s pretty much a corporate death match between Jerry “the Yahoo” Yang and Steve “the Basher” Ballmer. Although my money is invested with Jerry right now, I’d be betting on Ballmer to win this fight.
TechCrunch is reporting that Microsoft has “excused” the proposed slate of new Yahoo board members telling them that they won’t be needed anymore. I don’t think this tells us much if anything about the status of a new deal which rumors suggest may come from the Yahoo board’s concern over losing…billions of dollars.
I think MS is just playing this very smart. These little measures are designed to get the current Yahoo board to rethink their folly. I think only Jerry was dead set against the merger and the rest of the board would have settled for 35 or even 34 per share. Why wouldn’t they? Yahoo has been languishing for years, and the chance of getting back to 34 *without Microsoft* is fairly slim in the coming lean advertising years, not to mention the fact that low morale, challenges at the company, and the declining prospects with Microsoft may take the stock even lower.
Yahoo should have sold at 33 and I think they will almost certainly sell at 35 due to pressure from Shareholders and (more importantly) heavily vested board members who are “losing”, collectively, several billion dollars by sticking to their guns in this.