People get used to things staying the same, and many analysts cannot imagine a Yahoo owned by anybody, never mind Microsoft, and the rejections this week of the bid by Microsoft was fairly predictable. But it comes from a board that is as bereft of ideas of how to create shareholder value as the board of Sprint.
Yahoo has nothing in place that is likely to increase its value by even close to the amount the Microsoft bid lifted it, and every idea that has been thrown forward, merging with AOL, being bought by someone else, asking Microsoft to pay more ‘ are all steps along the way to accepting a deal.
The fact that Microsoft has never indulged in a hostile takeover should not lull anyone into a false sense of security. It has never been as threatened before by someone like Google. The major portal space is ripe for consolidation, and Microsoft management is desperate to find a way to grow the business. Thankfully for Yahoo shareholders Microsoft will not throw in the towel. If Microsoft gave up on the deal then the Yahoo share price would halve and the shareholder anger would end the careers of many of the people on the Yahoo board. Activist shareholders would circle overhead and the entire business would be broken up and sold in pieces following a two or three year performance spiral.
Luckily Microsoft is not put off that easily, and a proxy fight will ensue, which Microsoft can expect to win comfortably. In fact we don’t reckon that Microsoft will have to sweeten its bid in the slightest in order to gain ownership of Yahoo.
How can the board say that the bid ‘undervalues’ the stock when it added 60% plus to the spiraling share price overnight. About the only company that might make some kind of serious move to acquire Yahoo is Google, and it won’t bother because it is obvious that it would hit a regulatory roadblock. It can offer an advertising partnership, but Microsoft could argue that this is effectively a merger and point the anti-trust finger that has so often been pointed at Microsoft.
The biggest likelihood is that all of this will be understood and thought through, and after Yahoo has reviewed its options, some face-saving concessions will be announced by Microsoft, and the Yahoo board will heave a collective sigh and say ‘oh alright then,’ and cut a deal.