The Wall Street Journal (subscription required) just broke the story that Yahoo’s board plans to reject Microsoft $44.6 billion offer, citing our favorite source: “a person familiar with the situation.” Apparently, $31 per share “massively undervalues” Yahoo, according to the same source. The logic is that the offer doesn’t take into account risks Yahoo would go through (that is, if regulators overturned the deal) by entering into an agreement with Microsoft.
Accordingly, Yahoo’s board will send a letter to Microsoft on Monday explaining the situation. This article comes just hours after another WSJ article quotes several investment bankers who basically say that “investors have lost confidence in Yahoo management’s ability to reverse the company’s fortunes on its own.” Nevertheless, here’s Yahoo’s reasoning for rejecting the offer:
- Yahoo thinks Microsoft is trying to take advantage of Yahoo’s weak stock price and is saying that Microsoft wants to “steal” the company.
- Yahoo board members won’t consider offers below $40 a share, an extra $12 billion (quite the premium, considering the first offer was a 62% premium over Yahoo’s market value).
- Yahoo is effectively stalling while it considers an alternative of partnering with Google (ironically, a point that nullifies the original point of Microsoft’s offer not taking into consideration “risks” of regulation, considering the risks of regulation are higher with Google).
- Yahoo is hoping that Microsoft will not follow through with a hostile take over (even if Steve Ballmer said as much in his original letter). The reasoning here is that important engineers would not be willing to cooperate in a hostile take over, and regulators may be more easily convinced that this deal is anticompetitive if hostile.
Yahoo seems to be grasping at straws with this, what with all the contradictions in the logic above. We shall see how this plays out…
*Update* TechCrunch points out how this could turn into an $80 billion headache for Microsoft (though the logic used is based on short term stock market fluctuations). More coverage and opinions via Techmeme.
*Update 2* What the? Yahoo looking to AOL for help now? I agree that this not a great solution.
Bob, awesome analysis. There is one interpretation that doesn’t have contradictions, however. Perhaps the board and the management know something about the value of Yahoo assets, or new projects that are in the works that the outside world does not. If this is the case, Microsoft and shareholders would indeed undervalue the company.
If that *is* the case, then Yahoo wouldn’t be “grasping at straws” in rejecting this bid… just a thought. Why don’t you use your awesome journalism skills to see if it’s true?
Maybe…-
The board and management know something no one else does? That’s interesting considering they’ve resorted to apologizing at shareholder meetings for lackluster performance.
If they *do* know something no one else does, now would be the time to share it. You know, when it could mean billions of dollars more from an increased bid. Or this magic secret could be a reason for shareholders to have faith in Yahoo management again and drive up the share price.
You’re right. Now would be the time to share it.
“… that important engineers would not be willing to cooperate in a hostile take over… ”
When do engineers actually get a say in Yahoo’s direction? If so, who’s at fault, Yahoo’s board and management, or the engineers?
Good point, Joseph. Another question I have:
Is there really that big of a difference between the level of cooperation from engineers in a hostile take over vs. a board endorsed take over? These engineers likely have their own opinions that are independent of whatever the board decides.
Pretty much what I predicted when I answered the call for a “game theoretical” analysis of the negotiations:
http://www.texttechnologies.com/2008/02/08/a-game-theorists-view-of-microsoftyahoo/
Yahoo’s “threat points” are stronger than one might first think.
CAM
Thanks for the link Curt. That was an interesting read on the scenario that you definitely don’t see being said elsewhere.
Bub, they did have a secret plan!
http://valleywag.com/355175/yangs-secret-plan-for-a-yahoo-comeback