Yahoo is Either Delusional or They Are Negotiating

Implications: Frankly I am a little surprised.  You would think that after living in the shadow of Google for so long and failing to excite anyone in the web space for so long, Yahoo would have seen the Microsoft offer as a huge opportunity. Microsoft should shift strategies.

Analysis: When you consider what Yahoo did for the Internet business, the strength of feeling toward the company’s legacy would be a factor in why Yahoo rejected the Microsoft bid.  Clashing corporate cultures have been the source of many failed mergers.

I don’t fault the Yahoo people at all for taking such a strong stance.  Look at what the company has accomplished.  However, the valuation of a company has nothing to do with past glory unless that past glory is still contributing to the company’s bottom line.  There is a value to Goodwill; the question facing any two parties in a negotiation is how much that Goodwill is worth.

The Yahoo board would be correct in believing that Microsoft is trying to take advantage of the recent weakness in the company's share price to "steal" the company.

Microsoft needs to do something as it relates to an Internet and media strategy.  Yahoo is facing a declining share of the marketplace.  Both need each other.  The question is who needs each other more?  We are looking at a game of chicken.

If I were Microsoft I would tell Yahoo thank you and walk away.  Yahoo has already dropped a hint through their “person familiar with the situation” they would consider an offer over $40 per share.  First rule of negotiating: start from your best number not the seller’s best number”.  Second rule of negotiating: always be prepared to walk away.

The reality is that any purchase of Yahoo would require the permission of the USA and EU regulatory bodies.  Now you are looking at a 2 year process.  “Microsoft, it’s not worth the regulatory fight for $40 plus per share”.

Let Yahoo stew for awhile.  Microsoft may want to consider the reality that merging two companies with powerful internal cultures will be extraordinarily difficult.

Here is a thought.  Microsoft ought to make a bid for Craigslist.  Craigslist has gained such popularity in the marketplace that people forget its growth was nearly all viral.  Of course Craigslist purchase will take Microsoft away from an email/advertising strategy.  However, Craigslist is popular with advertisers and consumers.  Of course Craigslist has had its share of bad financial news, even bizarre news but the question is how much tolerance does Microsoft have for a quirky company like Craigslist?  Craigslist has brand power.  In the end I suggest Microsoft look elsewhere for each successive acquisiton will make Yahoo want to negoiate.