Microsoft Pulls Back Offer – Someone at Yahoo Is Going to Have a Lot of Explaining To Do

Implications: The word is already out, Yahoo stock is dropping like a stone in water.  It might float soon.

Analysis: I have stated in past analyses that I was not a big supporter of a Microsoft-Yahoo merger.  I have also stated that a better suitor would have been News Corp.  Further, I had also stated that Microsoft should not up the offer.  Microsoft did but thank goodness the company did not knuckle under Yahoo’s demands.

There is such a thing as overpaying for a company; Wall Street hype aside.  You cannot turn a bad deal into a good deal.

Microsoft says it is not using the withdrawal of its offer as a negotiating tactic.  That is fine.  A hostile takeover leaves nothing but bad blood.  The Microsoft people would need Yahoo staff to merge and synergize Yahoo with Microsoft.  Microsoft would have had a disastrous time trying to integrate key Yahoo people who just had a deal rammed down their throats.  However, such inconvenience can always be overcome by one party regretting their arrogance.

Of course, if Yahoo’s stock craters then Yang may tell Microsoft that he was only kidding about the $37 plus offer.  As I am writing this Yahoo’s stock has dropped.  But I would not count Yahoo down and out.  Stock holders need to understand that Yahoo still has a lot to offer.  I have stated in past analyses that a merger with News Corp would be a solid strategic move for both but not at those high prices.  A possible joint venture between Yahoo and News Corp could work.

For the next several days, Yang will be dealing with a lot of very angry investors.  Expect a great deal of activity from Yahoo.  My suggestion to investors is: don’t jump to conclusions and don’t overreact.  Yang will be doing cartwheels for investors for the next couple of weeks.