Sunday, May 04, 2008

Will Yahoo pull a rabbit out of their hat before the stock market opens?

Also some analysts believe that Microsoft's withdrawal of their offer for Yahoo is simply a negotiating tactic (see the article on MarketWatch by Jon Letzing entitled "Microsoft plus Yahoo: Is it really over?"), I am rather skeptical, although the letter to Yahoo seemed to offer a rather explicit list of issues that Microsoft had been concerned about which seemed detailed enough to almost say "please fix these issues and then the deal can be done." Yahoo had an entire month here to agree or counter-propose workable deal terms. The meeting on Saturday was not simply "another meeting", but the true climax of recent meetings. Actually, I am starting to think that Microsoft is rethinking their rationale for doing the deal rather than continue on by themselves. After all, if Yahoo was really so important, would $2 billion or $5 billion really be a deal breaker? I think not. I think the Yahooligans managed to convince Microsoft that they would be too much of a pain in the butt and it actually would be easier for Microsoft to proceed without Yahoo. Although it is always possible that a new deal could be put on the table at some time in the future, it now seems fairly clear from a common sense reading of Microsoft's press release and Ballmer's letter that the plug really has been pulled on the deal, for good. Yahoo in turn issued its own letter which effectively agreed that the proposed "marriage" really was "off." But that is not necessarily the end of the story. Yahoo had been engaged in a variety of strategic discussions in the past couple of months, so faced with the prospect of a breathtaking plunge in stock price on Monday morning, Yahoo could manage to paper together enough of a proposed deal with AOL, News, Google, etc. before the opening bell on Monday to at least give the appearance that they were on the verge of "changing the game" in a dramatic enough manner to give investors a reason to cheer rather than focus on how quickly to drive the stock below $19. I have no evidence or reason to believe that such a deal might really be in the offing, but in this kind of end-game, anything goes and such a face-saving Hail Mary pass could be palatable to Yahoo's board of directors. Although the chance of Yahoo making such a move is slim, the compelling nature of a stock in free-fall could compel the board to go for it, even if such a proposed deal eventually falls through.

Personally, I would advise Yahoo's board to "go for it", and pull that rabbit out of their... "hat." But I would say that there may be only a 1 in 3 chance of them doing so.

Personally, as much as I have invested in Microsoft, I would be happier seeing an independent Yahoo go it alone and proving that it is not a "Google and Microsoft only" world. I like having three major choices for search, email, content, etc. Broad choice is a very good thing.

So, good luck Yahooligans!

-- Jack Krupansky

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