Simon’s Blog

A few days ago, I wrote about it seeming likely that Microsoft would offer a maximum of $33 per share for Yahoo!, but that there were rumours that Yahoo! wanted $37 per share. I said:

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.

And that’s just what happened.  Yahoo!’s negotiating team, presumably after consulting with shareholders, dug its heals in, and, yesterday, Microsoft walked away, withdrawing its offer. In a letter to Yahoo! CEO, Jerry Yang, Microsoft CEO Steve Ballmer wrote,

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Yahoo!’s Board and its major shareholders appear to believe they can grow the company’s value by a huge amount in the coming years.   I haven’t done the calculations to factor in risk, but make no mistake, if you turn down an offer to pay a 70% premium for the current market value of your company, you must believe you can grow the value by hugely more than 70% over a period of a few years (perhaps by 200% - 300%).  I’ve not seen a plan from Yahoo! that can deliver this.

Now, I’ve said here that this is an outcome that Yahoo!’s shareholders would be happy with.   That is, they wanted $37 per share, or nothing at all. The big question is: will they still think this when the cold light day hits on Monday and trading of Yahoo!’s stock resumes?   How low will Yahoo!’s share price go?

If, by some chance, Yahoo!’s Board let Microsoft walk away without the approval of their major shareholders (which I find almost impossible to believe)…well, oh dear…  that will be the end of Yahoo!  The shareholders will fire the Board.  The management team will be fired by the new, replacement Board.   And Yahoo! will be sold to the highest bidder.

Update: Monday 5 May, 10:48 GMT - The Sell-Off Begins

Yahoo!’s stock is not only traded in the US… In Europe in early trading, Yahoo!’s stock was already down to $23.17 a share…