Simon’s Blog

Microsoft has, though a leak to the Wall Street Journal (see Silicon Alley Insider), indicated that it would be prepared to up its current offer for Yahoo! to $32-$33 per share (the original offer was $31 per share).  It’s surprising to me that Yahoo!’s shareholders haven’t already bitten of Microsoft’s hand to take the original offer – it’s a 60% premium to the value the market had placed on Yahoo! prior to the offer.  If Microsoft walks away, Yahoo!’s share price will plummet back down to around $20 where it was before Microsoft made its offer… In fact, it might even fall below that level if shareholders decide to cut their losses.

So, will Microsoft walk away from this deal?  I suspect it might if some progress isn’t made soon.   I don’t see that it would hurt either Ballmer or Microsoft if they miss out on this deal: it’s not as if Yahoo! is a magic bullet that would fundamentally transform Microsoft’s ability to compete with Google in search-marketing.   Big M&A transactions consume a huge amount of management time.  In this case, it’s certainly arguable whether the distraction is worth it.

If Yahoo!’s shareholders are really holding out for an offer of $37+ per share, as some are suggesting, I suspect they’re going to blow it, and end up with nothing.   No-one else wants to buy Yahoo!   Microsoft’s is the only offer on the table.   It’s hard to see how Yahoo!’s share price would ever recover if Microsoft walks away.